MTN Group LimitedIntegrated Business Report for the year ended 31 December 2010
the way
MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Scope and boundary of this reportMTN Group Limited’s integrated report is released at least 15 business
days prior to its AGM in June. The report covers the period from
1 January 2010 to 31 December 2010. It provides a general narrative
on the performance of the Group’s business across 21 markets in the
Middle East and Africa, but focuses its detailed commentary on the
operational performance of its main businesses in Nigeria, Ghana,
Syria, South Africa and Iran. In the first three of these, MTN Group
owns a majority stake. In South Africa, MTN’s operation is wholly
owned by the Group and in Iran MTN has a 49% share of MTN Irancell.
MTN reports more comprehensively on these five operations as their
performance has the potential to have a material impact on the overall
sustainability of the Group. Included in the report are the Group’s
consolidated annual financial statements.
Reporting principlesMTN is a company incorporated in South Africa under the provisions of the Companies Act and complies with the principles of King II, the Companies Act and the JSE Limited Listings Requirements and other legislation requirements. The Group subscribes to high ethical standards and principles of corporate governance and is in the process of ensuring full compliance with King III, published in 2010, and with the provisions of the new Companies Act, expected to be promulgated in the current year. For more details, and an overview of the Group governance structure, please see the corporate governance section on page 24.
In addition to the above the Group follows International Financial Reporting Standards (IFRS) to compile its annual financial statements. For reporting on sustainability issues it also complies with Global Reporting Initiative (GRI) standards including the Telecommunications Sector supplement pilot. We have also consulted the ISO 26000: 2010 Guidance on Social Responsibility, and integrated results of initial engagement with stakeholders based on the AccountAbility AAA1000 Stakeholder Engagement Standard.
Assurance: On the basis of the recommendations from the joint auditors (PricewaterhouseCoopers Inc and SizweNtsaluba VSP) the audit committee provides assurance on the annual financial statements, . MTN is working towards its first sustainability report assurance for presentation in 2012.
The board of directors acknowledges its responsibility to ensure the integrity of the integrated report. The board has accordingly applied its mind to the integrated report and in its opinion, the report starts a process to better address all material issues, endeavouring to present fairly the integrated performance of the Group and its impacts.
About this reportThis year, MTN Group Limited (“MTN”, “the Group”) has made changes
to the way it reports, working towards producing a more integrated
publication as recommended in the revised King Code on Governance
Principles for South Africa (King III). King III and the Framework for
Integrated Reporting discussion paper recommend that companies
should not only report on their financial performance, but also on
their sustainability by disclosing social, environmental and economic
impacts and influences, both positive and negative. MTN has
embarked on a journey towards providing a more comprehensive
picture of the Group in one integrated document. It has identified an
integrated risk matrix of the Group which incorporates operational
mitigation as well as the Group’s economic, social and environmental
initiatives aimed at providing long-term sustainability of the Group.
This matrix forms a thread throughout the performance narrative
including the chairman and Group president and CEO statements
where it is considered in a strategic context and in the operational
and financial review where details of specific initiatives are included.
However, for more detailed information on the Group’s sustainability
initiatives, risk management and corporate governance, stakeholders
are directed to the separate sustainable development report, available
at www.mtn.com. MTN welcomes feedback from stakeholders at
1MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Financial highlights Contents
4 Profile 5 Key statistics6 Group structure
10 Key relationships11 Integrated risk summary12 Risk mitigation table16 Chairman’s statement20 Group board of directors24 Governance highlights30 Group president and CEO’s statement34 Group executive and steering committee38 Operational and financial performance review74 Five-year review77 Glossary82 Statutory certificates and reports87 Directors’ report
106 Annual financial statements106 Group statements
111 Summary of principal accounting policies
139 Notes to the Group financial statements
199 Financial risk management and financial instruments
214 Company financial statements
234 Notice of AGM and shareholders’ information* Excluding the impact of MTN Zakhele transaction.
Subscribers (m)
0
30
60
90
120
150
2010200920082007
61,4
90,7
116,0
141,6
Adjusted HEPS (cents)*
0
200
400
600
800
1 000
2010200920082007
681,9
904,4
754,3
909,1
Revenue (Rbn)
0
20
40
60
80
100
120
2010200920082007
73,1
102,5
111,9 114,7
EBITDA (Rbn)*
0
10
20
30
40
50
60
2010200920082007
31,8
43,246,1
50,5
2
3
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Profile
Key statistics
Group structure
MTN is committed to connecting the emerging world. This is evident from our footprint that extends over 21 operations, covering a population of 552 million people with more than 36 750 base transceiver stations across its markets. The efficient distribution networks ensure that our products and services are available everywhere you go.
MTN Group Limited Integrated Business Report for the year ended 31 December 20104
Incorporated in 1994, MTN Group Limited is a multi-national telecommunications group offering voice and data communications products and services to individuals and businesses. MTN has GSM licences in 21 countries and internet service provider businesses in 13 countries, spanning three continents. At the end of December 2010, it had 141,6 million total subscribers. In 2010, its revenues reached R114,7 billion and it invested R19,5 billion in developing its network infrastructure, bringing to more than 36 750 the total number of MTN BTS. MTN also made investments in fibre optic cables as well as growing access to broadband capacity on undersea cables. MTN predominantly uses independently owned outlets to distribute its products and services, but also has own branded stores.
MTN’s vision is to be the leading telecommunications provider in emerging markets. It has 34 558 employees who communicate in five official languages and represent 55 nationalities. In 2010, MTN invested R246 million on employee development.
MTN Group Limited’s head office is in Johannesburg, South Africa, where the Group is listed on the JSE Limited under the share code “MTN”. MTN is the largest primary listing on the exchange. MTN also has a level 1 American Depository Receipt Programme. The Group operates in three regions: South and East Africa (SEA), West and Central Africa (WECA), and the Middle East and North Africa (MENA).
MTN SEA is made up of GSM licences in MTN South Africa, MTN Swaziland, MTN Zambia, MTN Uganda, MTN Rwanda and Mascom Botswana and ISP businesses in South Africa, Uganda, Rwanda, Zambia, Namibia, Kenya and Botswana.
MTN WECA comprises GSM licences in MTN Nigeria, MTN Ghana, MTN Cameroon, MTN Congo-Brazzaville, MTN Côte d’Ivoire, MTN Benin, MTN Guinea-Bissau, MTN Guinea Conakry and MTN Liberia and ISP businesses in Nigeria, Cameroon, Côte d’Ivoire and Ghana.
MTN MENA consists of GSM licences in MTN Irancell, MTN Syria, MTN Sudan, MTN Afghanistan, MTN Yemen and MTN Cyprus and ISP businesses in Syria and Cyprus.
The core of MTN offerings include: Voice services via 2G and 3G networks, including prepaid and postpaid airtime (on various price plans), please-call-me message service, international roaming,
electronic voucher distribution services and community payphones. Mobile and fixed data products, including short message service (SMS), multimedia message services (MMS), internet access via various technologies
(including 3G, WiMax, EDGE, HSPA), MTN MobileMoney, content portal MTN Play, Google SMS information services, USSD services (including callback and balance enquiries) and corporate data services.
In certain markets MTN also serves corporate customers providing solutions designed to manage costs, improve efficiencies and deliver consistent quality. Among these are: data solutions, satellite connectivity, infrastructure solutions (data centres and hosting solutions), customer and productivity solutions, converged services and other support and sector-specific services.
MTN’s business model is evolving. Although there is still considerable untapped demand for voice services in many markets, MTN is also investing in and expanding its infrastructure to enable more use of data services. As smartphones become more accessible to more people, demand for internet services grows and so MTN’s opportunity expands.
Profile
5MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Key statistics
2010 2009 Comments
Countries in which MTN has GSM licences 21 21Subscriber numbers 141,6 million 116,0 millionCountries in which MTN has largest market share 15 15Market capitalisation R253 billion R217 billionShare price at year end R134 R118Revenue R114,7 billion R111,9 millionData’s contribution to revenue1 11,1% 8,5%EBITDA R50,5 billion R46,1 billionEBITDA margin2 44,0% 41,1%Average foreign exchange rates (rand to local currency)Nigerian naira 20,67 17,83 (16%)Ghanaian cedi 0,20 0,17 (18%)Iranian rial 1 401 1 195 (17%)Average rand/dollar rate 7,34 8,32 +12%Dividend payout ratio 55%3 25%Capital expenditure R19,5 billion R31,2 billion Investment in undersea cables since 2008 R1,3 billion not applicableInternal audit hours 130 000 110 000 160 0004
Employees 34 588 34 543Investment in employee training R246 million not availableCO2 emissions from energy use5 1 124 000 tonnes 565 000 tonnesScope 1 743 000 tonnes 280 000 tonnesScope 2 379 000 tonnes 281 000 tonnesScope 3 4 000 tonnes 4 000 tonnesCountries in which MTN deploys alternative energy 14 not availableInvestment in e-waste pilot (South Africa) R9,3 million not applicableInvestment by MTN foundations $23 398 767 not availableBrand value6 $4 920 million $4 693 million
Note 1: Including SMS revenueNote 2: Excluding MTN ZakheleNote 3: Interim dividend introduced in 2010 Note 4: Projected for 2011Note 5: This increase was the result of the inclusion of more MTN operations, as well as an increase in the scope and accuracy of the data.Note 6: MTN is the only African brand in the 2011 BrandFinance®Global500, ranked 199.
As the integrated reporting process advances, MTN will provide more targets on key sustainability measures.
MTN Group Limited Integrated Business Report for the year ended 31 December 20106
Group structure
100%
MTN International
MTN Mauritius
100%
100%
30% MTN Swaziland100% Service providers
100% Network operations
100% Business solutions
70% MTN Cameroon
95% MTN Uganda 100% MTN Congo-Brazzaville
53% Mascom Botswana 76% MTN Nigeria
55% MTN Rwanda 65% MTN Côte d’Ivoire
90% MTN Zambia 49% MTN Irancell
+
Legal ownership
MTN South Africa MTN Holdings
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7MTN Group Limited Integrated Business Report for the year ended 31 December 2010
MTN Dubai
20% Belgacom International Carrier Services
100%
75% MTN Guinea Conakry 75% MTN Benin
98% MTN Ghana 100% MTN Guinea-Bissau
60% Lonestar Liberia 75% MTN Syria
83% MTN Yemen 50% MTN Cyprus
85% MTN Sudan 91% MTN Afghanistan
MENA Middle East and North Africa
West and Central AfricaWECA
South and East AfricaSEA
Afghanistan
Iran
SyriaCyprus
Sudan
Yemen
Uganda
Rwanda
Zambia
Botswana
Swaziland
South Africa
Cameroon
NigeriaBenin
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Guinea-BissauGuinea Conakry
LiberiaCôte d’Ivoire
Ghana
Congo-Brazzaville
8
9
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Key relationships
Integrated risk summary
Risk mitigation table
MTN is a communications company that is inspired by bold and visionary leadership, through which we endeavour to accelerate development in the emerging world.
MTN Group Limited Integrated Business Report for the year ended 31 December 201010
Key relationships
Customers
Suppliers
Employees
Local communities,
civil society and environmental organisations
Investors
Independent distributors
Governments and regulatory
authorities
The media
As a step towards better articulating MTN’s key relationships, the Group has identified its most important stakeholders in the graphic below. MTN has considered the interest, impacts and influences of all its stakeholders. Although the Group and its operating companies already maintain constructive relationships with stakeholders, in 2011 it will put in place more formalised systems to track stakeholder input for the purposes of a more informed integrated reporting process.
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11MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Integrated risk summaryM
ACR
O
Exposure to currencies other than reporting currencyExposure to various currencies has an impact on MTN’s rand reported financial results and the servicing of foreign denominated expenses and liabilities. Fluctuations in the NGN/USD and the USD/ZAR have the most impact on the results.
SECT
OR
Increased regulationTelecommunications is a regulated industry and of strategic importance as a key element of infrastructure to countries in which MTN operates. Regulatory requirements include telecommunication-related regulation such as licence renewals, SIM card registration, mobile termination rates as well as tax and central bank regulation which may have a negative impact on the Company’s revenue and profitability.
Exposure to high risk countriesMTN’s strategy is to be the leader in telecommunications in emerging markets. Emerging markets are generally higher risk countries. These risks include limited infrastructure, immature or unpredictable legal environments, human rights and security considerations as well as sanctions.
OPE
RATI
ON
AL
Shortage of skilled human resourcesExperienced and skilled human resources in the telecommunications industry are scarce, potentially affecting business efficiency and effectiveness. This is exacerbated as competitors, also in search of similar expertise, attempt to attract MTN’s pool of talent.
STRA
TEG
Y
Slowing revenue growthSubscriber growth is slowing as a result of increased voice penetration, more aggressive competition and increasing substitute products – for example VOIP and other internet-based product offerings. These factors require MTN to respond to evolving industry and consumer trends toward a broader product offering including mobile and fixed data and other services. Regulatory interventions such as reduced interconnect tariffs creates additional pressure on revenue.
Inability to timeously, effectively and efficiently invest and upgrade network and IT technology Although investments in networks is less of an issue than it was prior to MTN’s extensive capital expenditure programme in 2008 and 2009, investment is required to ensure capacity for new subscribers and more traffic from tariff reductions. Equally important is the planning of networks and IT technology upgrades to ensure appropriate ROI and the timely roll out to ensure the opportunity is not lost.
Poor customer experienceIn order for MTN to maintain its leadership position and positive brand perception the customer experience is important. Ensuring MTN’s products are widely available with good customer service on all product ranges through all customer touch points are key factors.
Inability to maintain and/or grow profitabilityIn combination with slowing revenue growth, MTN’s ability to maintain/reduce it costs is critical in order for it to continue to operate at historical profitability levels. Reducing the cost base and/or increased efficiencies will allow MTN to service lower-end customers as well as deliver a different product mix profitably.
Inadequate governance and controlThe implementation of mature and well controlled processes such as revenue assurance, procurement, asset management and certain key financial controls are critical to MTN both from a profitability and governance point of view. In addition, aspects such as proper business continuity management procedures and governance structures are key factors.
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MTN Group Limited Integrated Business Report for the year ended 31 December 201012
Risk mitigation table
Integrated risks Operational mitigation Social/economic and environmental sustainability
MA
CRO
Exposure to currencies other than reporting currency
Increasing diversification of the operating portfolio will reduce concentration of risk. Operations are managed on a local currency basis. Cash flow and foreign exchange risk is managed through treasury policy and committee oversight. Much of this risk is also an opportunity.
MTN supports local banking markets, providing an opportunity to develop the banking industry, keep profits local and decreasing potential volatility on local currencies by moving cross border flows to receive and service obligations.
Exposure to high risk countries
Diversification of the operating portfolio through further M&A, in other emerging markets. An independent and dedicated risk management team monitors country risk and business continuity. Sound governance is ensured through the representation of independent non-executive members on all boards while representation of local shareholders provides local insight and understanding. MTN takes a politically neutral stance but does engage – through its dedicated stakeholders relationship function. MTN adheres to a strong code of conduct. There are various initiatives aimed at managing the impact of sanctions including in separating funds management from sanctioned countries.
MTN has a commitment to support local ownership, usually through private placements or OTC trading. These structures are also beneficial to the Company as local insight and understanding is shared. It is usually the largest national taxpayer and/or employer. It is involved in local social initiatives and its product is relevant to improving the lives of the local population.
SECT
OR
Increased regulation
MTN has taken actions including continued constructive and transparent engagement with authorities at a Group and country level to ensure the success of social and commercial imperatives. This is best done through proactive relationships and insights into national challenges. MTN has also adopted a Group-wide tax risk management process to proactively as well as reactively consider the implications of changing legislation and management of these risks.
Every operation has a dedicated regulatory team lead by a local member of the executive team. Again MTN’s local approach aimed at maintaining better relationships does assist, as does proactive engagement with regulators, showcasing international best practice and educating on environmentally friendly solutions. MTN engages on a range of social and environmental activities with government bodies.
STRA
TEG
Y
Slowing revenue growth
It is key to MTN to maintain its leadership position. MTN has embarked on a strategy to effectively penetrate deeper into the untapped voice markets by introducing a segmentation approach to better understand the customer and therefore offer more effective value propositions. This has been combined, in many countries, with the implementation of a more effective distribution strategy and framework. It has also recognised the need to diversify its revenue stream thereby offering its customers a more holistic service. MTN it has acquired ISPs in a number of countries and has been increasingly introducing more non-voice products including data and mobile money. In 2010 a dedicated commercial function under a senior VP at a Group level was introduced for further development and implementation of these strategies. MTN has also invested in undersea cables which will allow for cheaper broadband for MTN which will in turn make data products more affordable and accessible. This together with the decreases in the price and distribution of smartphones will help penetrate the untapped data market which presents a large opportunity for MTN.
Segmentation of the market creates more affordable technology solutions to lower income segments of the market increasing communication for the broadest possible group of people. Services in line with data strategy include banking the “unbanked”, e-health and relevant social initiatives. MTN’s foundations are focused on education, health and other social and economic upliftment projects of communications. This helps increase literacy which is a stimulus for social and economic development in the country and will support further data.
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13MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Integrated risks Operational mitigation Social/economic and environmental sustainability
STRA
TEG
Y
Inability to maintain and/or grow profitability
MTN has aggressively over the last year been putting measures and structures in place to reduce costs to better respond to the evolving business model including new systems and processes. Although some of these initiatives are still in their infancy, many areas have been identified including a focused and ongoing procurement drive, infrastructure sharing (MTN has established a Tower Co in Ghana), shared services and outsourcing non-core activities, improving efficiency of the distribution channel, as well as tools such as ABC to leverage lessons and best practice across the Group. Revenue opportunities up and down the value chain are often being considered on a collaborative basis.
Outsourcing, shared services and similar create opportunities for local entrepreneurs as well as the leveraging of local resources.
OPE
RATI
ON
AL
Shortage of skilled human resources
MTN strives to be an employer of choice. it is on a continuous basis reviewing and enhancing its retention incentives to staff. These include competitive remuneration practices which cover both short- and medium-term incentives. MTN has also established an Academy as well as a talent management programme building leadership succession pools headed by a talent board under the chairmanship of a non-executive director. The diversity of its operations together with its sound reputation put it at an advantage when securing talent.
Addressing scarcity of skills have directed the MTN Academy’s initiatives to include more strategic investments in learning and organisational development across the group and its operations.
Inability to timeously, effectively and efficiently invest and upgrade network and IT technology
Networks are monitored continuously ensuring adequate quality and headroom capacity. Standardisation and optimisation of systems and technologies together with outsourcing of non-core activities does not only provide reduced costs but also ensures discipline and focus on critical business requirements. Each operation has a capital expenditure steering committee to drive the initiatives implemented by the Group’s CTIO’s office.
Infrastructure sharing addresses environmental issues including CO2 challenges. Energy efficient strategies including solar powered base stations, engineered solution efficiencies and a focus on waste mitigation.
Poor customer experience
MTN has, in most countries, implemented a streamlined distribution framework which includes an enhanced and effective footprint to ensure broad and deep distribution. Customer service also forms part of the distribution framework and includes the regular training for store and call centre staff on new developments relating to products and services. This is aimed at ensuring a good and consistent MTN experience.
In many of our markets the distribution channels have created job opportunities. The commercial opportunities of the business has been taken further in some countries where MTN has assisted individuals from communities to establish their own businesses, also providing them with the various skills they require to effectively run businesses.
Inadequate governance and control
Maturity of MTN’s control environment and governance structures continues to improve. Comprehensive governance and oversight structures exist including audit committees, risk committees, internal audit, fraud prevention and risk management measures covering all OPCOs in the Group. Although there will always be areas of focus as far as the control environment is concerned, MTN has made tremendous progress on this aspect. MTN has done a comprehensive assessment of the King III requirements especially on aspects like combined assurance, IT governance, integrated reporting and compliance and projects are currently underway to address whichever gaps may exist in MTN’s compliance on this topic.
MTN not only focuses on these issues internally but also in all of its external dealings bringing an understanding and appreciation in the communities in which it operates.
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Through our unique culture and Can-Do spirit, we have become the preferred mobile operator in the emerging world and Africa’s only global sponsor of the 2010 FIFA World Cup™.
Chairman’s statement
Group board of directors
Governance highlights
Group president and CEO’s statement
Group executive and steering committee
MTN Group Limited Integrated Business Report for the year ended 31 December 201016
“The board is able to balance its growth aspirations with that of ensuring improved short-term returns to shareholders.”
Cyril Ramaphosa Chairman
leveraging MTN’s existing footprint
and intellectual capacity; and
pursuing convergence and
operational excellence.
MTN has delivered on this strategy
through the various organic and
acquisitive opportunities it has
invested in to date.
In line with its ongoing pursuit
of value-accretive opportunities,
during the first half of 2010
MTN entered into discussions with
an African and Middle Eastern
telecoms operator relating to
the acquisition of certain of that
operator’s businesses. However, the
discussions were terminated on
9 June 2010 and on 15 July 2010,
the board of MTN announced a shift
in the priority of its strategic pillars.
Although the board will continue
to evaluate value-accretive
opportunities, it has recognised
that limited transformational
opportunities exist within emerging
markets. The board anticipates that
Integrating our reporting
This year, MTN has started on
a journey to provide a more
integrated report, in terms of its
social, environmental, economic and
financial impacts and influences. This
is one of the recommendations of
the revised King Code and Report on
Governance for South Africa (King III),
which was published in 2010. The
Group has worked towards ensuring
compliance with King III’s many
other guidelines as well as additional
regulatory requirements in line with
international best practice.
Increasing returns to
shareholders
The activities of MTN have for many
years been guided by its vision to be
a leader in telecommunications in
emerging markets, supported by the
following key strategic pillars:
participating in the consolidation
of the emerging markets’
telecoms sector and reducing
the concentration of MTN’s
earnings;
the Group will generate increased
cash flow through lower capital
expenditure and relatively stable
EBITDA margins in the period
ahead. As a consequence, the
board is able to balance its growth
aspirations with that of ensuring
improved short-term returns to
shareholders.
On 20 August 2010, MTN announced
its maiden interim dividend, together
with an increased dividend payout
ratio of 40%. A further increase in the
dividend payout ratio to 55% of the
full-year adjusted earnings per share
was advised on 9 March 2011 when
the Group announced its full-year
results.
Confronting challenges
MTN’s 2010 results were achieved
under challenging conditions:
competition intensified, regulators
continue to be more demanding,
the global economy’s recovery from
recession was sluggish and the
rand remained strong. But many
Chairman’s statement
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17MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Focusing on the environment
MTN Group made considerable
progress in integrating
environmental matters into its core
operations in 2010.
This is an important advance: many
of the markets in which the Group
operates are among the most
vulnerable to climate change.
MTN is defined as a medium-
impact company, and in 2010
worked to foster more responsible
practices and efforts to preserve
the environment and help mitigate
the effects of global warming.
MTN has investigated low-carbon
and renewable sources of energy to
power its base transceiver sites in a
number of operations and is already
reaping the rewards through lower
operating costs, emissions and
regulatory risk.
While many players in the
information and communications
technology sector are putting
together programmes to step up
the industry’s energy efficiencies,
the sector’s biggest influence will
be through playing an enabling
emerging markets and economies
– indeed, many of the markets in
which MTN operates – proved to
be relatively resilient.
Africa is considered by some as
the last frontier of growth: its
resource-dependent economies
are slowly diversifying and more
of its people are moving into the
cities. MTN considers there to be
considerable opportunity for greater
mobile penetration and other value-
added services in this region, one in
which MTN feels comfortable doing
business, helped by its experience
of the past 16 years. MTN’s
participation in the first FIFA World
Cup™ on African soil proved this.
However, the current political
upheaval in North and West Africa
and the Middle East shows that
operating in emerging markets
requires long-term commitment
and a steady hand as risks – be they
political, economic, financial, social
or regulatory – can, at times, appear
overwhelming.
MTN adheres to a strong code of
conduct and monitors country
risks continuously, leveraging its
dedicated risk management and
stakeholder relationship function.
It is constantly seeking to improve
its medical, security and crisis risk
management initiatives.
Engaging with regulators,
developing new revenue
streams and facing competition
Many countries consider the
telecommunications industry
to be one of strategic national
importance. This, perhaps, has
been one reason for increasing
regulation across MTN’s footprint.
In 2010, regulators in South Africa
and Nigeria reduced mobile
termination rates. The registration
of each customer’s personal details
was also implemented in these
two important markets, as well as
in several other countries.
MTN undertakes constructive and
transparent engagement with
regulators and has set up dedicated
regulatory teams in each market to
foster better communication.
Mobile licences continue to be
issued in many markets, increasing
competition. There are some
operators whose business models
appear to focus primarily on short-
term tariff reduction. However,
recent evidence suggests the
preference of some regulators for
a floor on tariffs. This is aimed at
ensuring the sustainability and
long-term commercial success
of the sector. In turn, it is based
on a growing acceptance of the
important role of sound, reliable
telecommunications businesses,
and not forgetting the considerable
taxes paid by these companies.
In recent years there has been an
increase in the importance and
focus on data and related products
and services although these are
still very much in their infancy
in many of the markets in which
MTN operates.
Various efficiency initiatives,
including the conclusion of an
infrastructure sale and lease back
agreement in Ghana, address the
mitigation of risks associated with
the evolution of the industry and
are dealt with in the operational
sections of this report.
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MTN Group Limited Integrated Business Report for the year ended 31 December 201018
Chairman’s statement continued
role in fostering energy efficiency
in other sectors. MTN’s leverage of
this includes machine-to-machine
solutions, teleconferencing and
telepresence and a recent energy
efficient data centre which improves
the cost base for corporate
customers.
MTN’s environmental efforts are
detailed in the carbon footprint
report on the JSE’s Socially
Responsible Investment Index
and in the Group’s sustainability
report available on www.mtn.com/
sustainability.
Working with communities
In 2010, MTN continued to work
with communities mainly through
MTN Foundations which facilitate
and fund various initiatives and
partnerships aimed at stimulating
and contributing to both economic
and social development.
By its very nature, MTN’s offering
is a key element of countries’
infrastructure and an enabler of
development. The Group works to
enhance wider access to mobile
services, promoting inclusivity.
It strives to build its network
responsibly, by ensuring safety for
people and the environment and
securing customer privacy.
One of the highlights of 2010 was
the finalisation of MTN Zakhele
– the largest black economic
empowerment equity ownership
deal in the South African telecoms
sector. The result is an initiative
that not only demonstrates
MTN’s commitment to the codes of
black economic empowerment in
South Africa but more importantly
contributes to the sustainable
economic and social development
of previously disadvantaged
people.
Appreciating outstanding
leadership
The year under review was the
last full year that Phuthuma
Nhleko held the position of Group
president and chief executive
officer following his resignation,
effective 1 April 2011. The board
and I would like to congratulate and
thank Phuthuma for his enormous
contribution to the success of
MTN since his appointment to the
position in July 2002.
Phuthuma is a visionary leader
who is focused and hard working.
He has an incisive ability to build
good management teams and
take calculated risks: he has taken
MTN where many feared to go –
and shown resilience in the face of
setbacks.
However, stakeholders can feel
confident that Phuthuma has left
the Group’s affairs in good hands
– those of Sifiso Dabengwa, Group
chief operating officer in the year
under review. In Sifiso’s 12 years with
MTN, he has run the operations of
South Africa and Nigeria, before
taking on the Group COO role.
It has been announced that
MTN is investigating the
establishment of MTN International
(MTNI). A subcommittee of the
board has been established
to thoroughly investigate the
implications and rationale for the
structure. Should a formalised
subsidiary board structure for
MTNI be approved, it is envisaged
that Phuthuma Nhleko will
accept an invitation to become
non-executive chairman of the
MTNI board of directors. An
announcement on the final
outcome of these investigations
will be made as soon as they
are completed. Phuthuma has
separately accepted an invitation to
rejoin the MTN Group board as non-
executive vice-chairman with effect
from 1 October 2011.
Three new independent, non-
executive directors joined the board
on 1 January 2010: Peter Mageza,
Alan Harper and Dawn Marole.
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Doug Band, an independent non-
executive director of the Group,
who also served as chairman of the
nominations, remuneration, human
resources and corporate governance
committee, tendered his resignation
from the board effective 11 March
2011. The directors and I wish to
extend our appreciation to Doug
for his outstanding contribution
since he joined the board in
October 2001.
Alan van Biljon, an independent
non-executive director of MTN and
the audit committee chairman,
has been appointed as lead
independent director effective
14 March 2011. The position of
lead independent director is new
at MTN and was created to further
embed the culture of independence
of the board of directors especially
in instances of perceived conflict of
interest.
Alan Harper, an independent non-
executive director and member of
the nominations, remuneration,
human resources and corporate
governance committee of
MTN since 1 January 2010, has
been appointed chairman of that
committee on 14 March 2011. He
succeeds Doug Band.
The board and I would like to
congratulate both Alan van Biljon
and Alan Harper on their new
roles.
Looking forward
With a strong focus on cost
management as well as on securing
new revenue streams, MTN is well
positioned in its markets to compete
within a changing competitive and
regulatory landscape.
The Group’s attempt to make this
year’s report a more integrated
one is the beginning of a process
towards achieving a better
articulation of MTN’s strategy, risks
and opportunities and we trust
it will help stakeholders to better
assess the ability of MTN to create
and sustain value.
Cyril Ramaphosa
Chairman
March 2011
Cyril Ramaphosa
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MTN Group Limited Integrated Business Report for the year ended 31 December 201020
Group board of directorsat 31 December 2010
1.
4.
8.
2.
5.
9.
12.
3.
6.
10.
13.
7.
11.
14.
21MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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1. MC Ramaphosa (58) | BProc, LLD (HC)
Independent non-executive director and
chairmanAppointed: 1 October 2001
Board committee membership
Nomination, remuneration, human
resources and corporate governance
committee.
Other directorships
Director of various companies in the
MTN Group; founder and executive
chairman of Shanduka Group (Pty) Limited;
non-executive chairman of The Bidvest
Group Limited; joint executive chairman
of Mondi Plc and Mondi Limited. Non-
executive chairman of SASRIA Limited, non-
executive director of SAB Miller plc, Macsteel
Global BV, Alexander Forbes Limited and
Standard Bank Group Limited. Cyril is also a
director of Kangra Coal (Pty) Limited, Assore
Limited, TBWA Hunt Lascaris Holdings
(Pty) Limited and Lonmin Plc (incorporated
in England and Wales).
Skills, expertise and experience
Previously chairman of the Constitutional
Assembly and the chairman of the
specially formed Black Economic
Empowerment Commission. Cyril was
also a member of parliament, secretary
general of the ANC and secretary of the
National Union of Mineworkers. Cyril
is currently on the national executive
committee of the ANC and has received
several honorary doctorates.
2. AF van Biljon (63)** | BCom, CA(SA),
MBA
Independent non-executive director
Appointed: 1 November 2002
Board committee membership
Chairman of the audit committee.
Other directorships
Director of various companies in the
MTN Group, Hans Merensky Holdings
(Pty) Limited, St Augustine College
of South Africa, chairman and trustee
of Standard Bank Group Retirement
Fund and Liberty Group Pension and
Provident Funds.
Skills, expertise and experience
Alan has held the position of the group
financial director for Truworths Limited,
The Greatermans Checkers Group, Sun
International, and The Standard Bank
Group from 1975 to 2002. In 2002,
he established a specialised financial
services company named Van Biljon
& Associates. Past non-executive
directorships include Alexander Forbes
Group, Peermont Global Limited and
Sage Group Limited.
3. PF Nhleko (51)* | BSc (Civil Eng), MBA
Executive director: Group president and chief
executive officer
Appointed: 1 July 2001
Board committee membership
Chairman of Group executive and
steering committee.
Attends various board committee
meetings ex officio.
Other directorships
Director of various companies in the
MTN Group, director of Newshelf 664
(Pty Limited and Engen Limited. Co-founder
and non-executive chairman of Worldwide
African Investments Holdings (Pty) Limited,
the GSMC Association and a trustee of the
Alpine Trust.
Skills, expertise and experience
Prior to joining MTN, Phuthuma worked
at Standard Corporate and Merchant
Bank. He was previously a director
of Johnnic Holdings Limited, Nedcor
Limited, The Bidvest Group Limited,
Tsogo Sun KwaZulu-Natal (Pty) Limited
and Alexander Forbes Limited.
4. DDB Band (67)* | BCom, CA(SA)
Independent non-executive director
Appointed: 1 October 2001
Board committee membership
Chairman of the nomination,
remuneration, human resources and
corporate governance committee.
Alternate member of risk management
and compliance committee.
Other directorships
Director of various companies in the
MTN Group, Business Against Crime
South Africa, Myriad International
Holdings BV, the Standard Bank of South
Africa Limited, Standard Bank Group
Limited and The Bidvest Group Limited.
*Resigned post year end. **Appointed lead independent director post year end. ***Appointed chairman of the nomination, remuneration, human resources and corporate governance committee post year end.****Appointed as Group president and chief executive officer post year end.
Skills, expertise and experience
Previously, Doug served as managing
director of CNA Gallo Limited, CEO of The
Argus Holdings Group and chairman and
CEO of the Premier Group Limited.
5. RS Dabengwa**** (53) | BSc (Eng),
MBA
Executive director: Group chief operating
officer
Appointed: 1 October 2001
Board committee membership
Group executive and steering
committee.
Tender committee.
Other directorships
Director of various companies in the
MTN Group, Newshelf 664 (Pty) Limited,
Long Street Property Development
(Pty) Limited, Salamax 765 (Pty) Limited
and Tsiya Group (Pty) Limited.
Skills, expertise and experience
Prior to joining MTN, Sifiso was Eskom’s
executive director responsible for sales,
customer service, electrification and
distribution technology. Before Eskom,
he worked as a consulting electrical
engineer in the building services industry
and in the mining and railway sectors.
6. A Harper (54) (British)*** | BA (Hons)
Independent non-executive director
Appointed: 1 January 2010
Board committee membership
Nomination, remuneration, human
resources and corporate governance
committee.
MTN Group Limited Integrated Business Report for the year ended 31 December 201022
Other directorships
Eaton Towers LLP and Venture Partnership
Foundation Limited.
Skills, expertise and experience
Alan previously served as group strategy
and new business director for Vodafone
plc, was a member of the executive
committee of the Vodafone Group, a
board member of the GSM Association,
chairman of Vodafone Ventures and
chairman of the board of trustees of the
Vodafone UK Foundation.
7. KP Kalyan (56) | BCom (Law)
(Hons) Economics, Senior Executive
Management Programme (London
Business School)
Independent non-executive director
Appointed: 1 June 2006
Board committee membership
Nomination, remuneration, human
resources and corporate governance
committee
Risk management and compliance
committee.
Other directorships
Standard Bank Group Limited, South African
Bank Note Company Limited, South African
Mint Company Limited, Edgo Merap
(London) Limited, Omega Risk Solutions
Limited, the Tallberg Foundation (Sweden)
Limited, Hayleys Energy Services (Sri Lanka)
Limited, Kgontsi Holdings Limited, Kgontsi
Investments Limited and Euromax (London
and Mumbai, India) Limited.
Skills, expertise and experience
Koosum is currently executive chairman of
Edgo Merap in London. Prior to that, she
was senior business development manager
at Shell International Exploration and
Production (Pty) Limited in London; general
manager, corporate, for Shell Southern
Africa; senior economist at the Chamber
of Mines; and economist at the Electricity
Commission of Victoria, Melbourne,
Australia. She was also a graduate lecturer at
University of Durban Westville.
8. NP Mageza (56) | FCCA (Fellow of
the Association of Chartered Certified
Accountants)
Independent non-executive director
Appointed: 1 January 2010
Board committee membership
Audit committee.
Other directorships
The Bidvest Group Limited, Remgro
Limited, Sappi Limited and Rainbow
Chicken Limited.
Skills, expertise and experience
Peter is a Fellow of the Association of
Chartered Certified Accountants United
Kingdom, and was until June 2009,
Absa executive director and group chief
operations officer. Prior to this he had
extensive experience in the financial/
banking arena.
Group board of directors continuedat 31 December 2010
9. MLD Marole (51) | BCom (Acc),
Dip Tertiary Education, MBA, Executive
Leadership Development Programme
Independent non-executive director
Appointed: 1 January 2010
Board committee membership
Risk management and compliance
committee.
Other directorships
Non-executive director at African Bank
Investments Limited, Incwala Resources
(Pty) Limited, Eyomhlaba Investment
Holdings Limited, Hlumisa Investment
Holdings Limited, Richards Bay Titanium
(Pty) Limited, Richards Bay Mining (Pty)
Limited, JP Morgan SSA and DEMA
Incwala Investment.
Skills, expertise and experience
Dawn’s career has primarily been in the
financial services sector and dates back
to 1983. She is the current chairperson
of POWA (People Opposing Women
Abuse).
10. AT Mikati (38) (Lebanese) | BSc
Non-executive director
Appointed: 1 July 2006
Board committee membership
Nomination, remuneration, human
resources and corporate governance.
Other directorships
Director of various companies in the
MTN Group, CEO of M1 Group Limited
(an international investment group with a
strong focus on the telecommunications
industry), director of various companies
in the M1 Group as well as EZ-Link, B-Pro
Limited, B-Jet Limited, Horizon Global
Services, IMC, Mint Trading, Unioil and
Facconable Group.
Skills, expertise and experience
Azmi founded T-One, a telecoms
company providing long-distance
services between the United States and
other international destinations.
11. MJN Njeke (52) | BCom, BCompt
(Hons), CA(SA), H Dip Tax Law
Independent non-executive director
Appointed: 1 June 2006
Board committee membership
Audit committee
Risk management and compliance
committee.
Other directorships
Director of various companies in the
MTN Group, Lengau Logistics (Pty) Limited,
ArcelorMittal SA, Ivolve Procurement
& Rental Partner, Metropolitan Health
Group, Metropolitan Holdings Limited,
NM Rothschild and Sons (SA) (Pty) Limited,
PSU Revenue Management trading as
PSU International, RTG Fleet Services (Pty)
Limited, Resilient Property Income Fund
Limited, Serengeti Properties (Pty) Limited,
Salvage Management and Disposal (SMD),
Sameh Properties and Silver Unicorn
Trading.
23MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Skills, expertise and experience
Johnson is chairman of Metropolitan
Holdings, ArcelorMittal SA and Resilient
Property Income Fund. He served as a
partner at PricewaterhouseCoopers and
is a past chairman of the South African
Institute of Chartered Accountants.
12. NI Patel (54) | BCom, BCompt
(Hons), CA(SA)
Executive director: Group chief financial
officer
Appointed: 29 November 2009
Board committee membership
Group executive and steering
committee.
Attends various board committee
meetings ex officio.
Other directorships
Director of various companies in the
MTN Group.
Skills, expertise and experience
Nazir is a qualified chartered accountant
with wide international experience
in Europe and the Middle East. Since
joining the MTN Group, Nazir has been
responsible for the Group financial
management and accounting function,
has participated in several of the Group’s
merger and acquisition activities and
serves on a number of MTN’s subsidiary
boards.
13. J van Rooyen (61) | BCom, BCompt
(Hons), CA(SA)
Independent non-executive director
Appointed: 1 July 2006
Board committee membership
Chairman of the risk management and
compliance committee
Audit committee.
Other directorships
Director of various companies in the
MTN Group, various companies in the
Uranus Group, Pick n Pay Stores Limited,
Exxaro Resources Limited and a trustee
of the International Financial Reporting
Standards (IFRS) Foundation.
Skills, expertise and experience
Jeff is a founder member and CEO of Uranus
Investment Holdings (Pty) Limited and
previously served as CEO of the Financial
Services Board. He is also a founder member
and former president of the Association for
the Advancement of Black Accountants
(ABASA) and was chairperson of the Public
Accountants and Auditors Board in 1995.
14. JHN Strydom (72) | MCom (Acc),
CA(SA)
Non-executive director
Appointed: 1 March 2004
Board committee membership
Audit committee
Risk management and compliance
committee
Other directorships
Non-executive director of various
companies in the MTN Group, the
Public Investment Corporation Limited,
Growthpoint Properties Limited.
Skills, expertise and experience
Jan is a registered chartered accountant
and a founding partner of Strydoms
Incorporated Chartered Accountants
(SA), a firm specialising in business
valuations, litigation support and forensic
investigations. He is now a professional
consultant to Strydoms. He is also a senior
member of the Special Income Tax Court
for taxation appeals.� Independent non-executive directors – 9� Executive directors – 3� Non-executive directors – 2
Group board (independence status)
Board diversity Directors, with their diverse
expertise and experience, play a
critical role as board representatives
on the various board committees
and ensure that the Group’s
interests are served by impartial,
objective and independent
views. MTN endeavours to have a
board consisting predominantly
of independent non-executive
directors to ensure strong corporate
governance as illustrated above.
MTN Group Limited Integrated Business Report for the year ended 31 December 201024
Governance highlights
Governance structureThis section provides an overview of the Group’s governance structure. This structure is also the basis for governance in the five largest MTN subsidiaries and
others. In all subsidiary operations, the audit committee also assumes the responsibilities of risk management and compliance. The board endeavours to ensure
that all operating companies comply with the same governance principles to which the Group aspires.
Committees
Management forums/Departments
Group board
Nominations, remunerations,
human resources and corporate governance
committees
Executive and steering committee
Group tender committee
Risk management and compliance
committee
Audit committee
Tier II tendercommittee
Commercialcommittee
Talent board
Internalaudit/business risk
management
Technicalcommittee
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25MTN Group Limited Integrated Business Report for the year ended 31 December 2010
and board committees; oversees the formulation of a remuneration philosophy and human resources strategy to ensure that the Group employs and retains the best human capital possible relevant to its business needs; maximises the potential of its employees; and ensures the Group’s adherence to sound corporate governance principles. Some committee meetings were preceded or followed by an in-camera session (meeting of non-executive directors only). All members of the committee are independent non-executive directors.
In terms of King III and the Listings Requirements, the chairman of the nominations committee should be the chairman of the board, and membership of the committee must consist of only non-executive directors. MTN has combined the nominations committee, human resources and remunerations committees as well as the corporate governance committee under one committee. As such MTN is not strictly compliant with King III recommendation. The chairman of the board is, however, a member of the committee and thus able to influence the nomination processes sufficiently.
The committee’s chairman attended the annual general meeting during the year under review.
Further details regarding directors’ remuneration and the Group remuneration philosophy are set out on page 92.
Group company secretary The company secretary is a central source of information and advice to the board and within the Company on matters of ethics and good governance.
This office also communicates and monitors compliance, among others, with the Group trade embargo policy and the Listings Requirements ensuring that no employee, executive director or non-executive director is allowed to deal in the Company’s securities during prohibited periods.
MTN understands that compliance with laws, regulations and all governance frameworks promotes and sustains the reputation and standing of a company. In ensuring compliance with King III, Listings Requirements and the Companies Act, 2008, the company secretary office, has the compliance function responsible for assisting the board of directors and management in implementing the awareness and assessment of compliance.
The general powers of the directors are set out in the Company’s articles of association. The board charter regulates how the board and individual members discharge their responsibilities according to the principles of good governance. The charter aims to ensure that all board members understand their duties and responsibilities as well as the laws, regulations and best practices governing their conduct. It also details the division of responsibilities at board level and between the board and between the board and management.
The MTN Group board retains full and effective control over the Group and is responsible, inter alia, for the adoption of strategic plans, the monitoring of operational performance and management, and the development of appropriate and effective risk management policies and processes. The strategy of the Group is mapped by the board in consultation with the Group
executive and steering committee (Exco). The board and Exco meet annually to formulate, review and agree on the group’s strategic intent.
The directors are of the opinion thatthey have adhered to the terms ofreference as detailed in the boardcharter for the 2010 financial year.
Board committeesThe board is satisfied that the board committees set out in detail below have effectively discharged their responsibilities as contained in their respective terms of reference during the year under review. Details of attendance and membership of the committees are set out on page 26. The committees’ members’ fees are included in the table of directors’ emoluments and related payments on page 94. The committees’ summaries are as follows:
Group audit committeeThe primary role of the committee is to ensure the integrity of financial reporting and the audit process. The full report of the committee is set out on page 85.
Group nominations, remuneration, human resources and corporate governance committee (NRHR & CG)The committee assists the board in discharging its duties relating to the nomination of board members and senior management. It makes recommendations to the board on the composition of the board
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2010 – 2011 Corporate governance key focusDuring 2010, the key focus was the review of the MTN Group corporate governance framework in light of King III, the Listings Requirements and the much awaited new Companies Act, 2008. The review was conducted with the assistance of independent advisers.
Hence, MTN is able to implement some of the key requirements of the new Companies Act, effective from 1 May 2011. As part of the first cut of the implementation plan, notice of the annual general meeting to be held in June 2011, has been prepared in accordance with the new Companies Act.
MTN Group Limited Integrated Business Report for the year ended 31 December 201026
Governance highlights continued
Group tender committeeThe Group tender committee’s primary objective is to promote a sustainable and fair tender culture and to ensure that tender policies are applied consistently, always bearing in mind best business practices to develop all markets and promote economic development. The committee is chaired by
an independent non-executive director. The committee’s charter, which is approved by the board and reviewed periodically, aims to promote an effective, transparent and independent procurement and tender evaluation process. Due to the fact that the committee only reviews high-level tenders the meetings are convened as the need
arises. Various lower-level tender committees are in place group-wide to ensure that all other tenders are reviewed with the same level of efficiency.
Special ad hoc board committeesIn certain instances, the board constituted special board committees which are granted the
necessary authority to deal with the salient matters under special projects and to allow for a more detailed consideration of issues. Special committees may consist of different directors depending on the expertise required to resolve any special matters under review by the committee.
Directors
Scheduled board
meetings attended
Specialboard
meetingsattended Audit
Meetings attended Risk
Meetings attended NRHR & CG
Meetingsattended
Independent non-executives (INEDS)MC Ramaphosa 4/4 10/10 Member 8/8DDB Band 4/4 9/10 Chairman 8/8KP Kalyan 4/4 10/10 Member 3/3 Member 8/8MJN Njeke 4/4 7/10 Member 4/5 Member 3/3 AF van Biljon 4/4 10/10 Chairman 5/5 J van Rooyen 4/4 10/10 Member 5/5 Chairman 3/3 A Harper 4/4 10/10 Member 8/8MLD Marole 4/4 10/10 Member 3/3NP Mageza 4/4 10/10 Member 5/5Non-executivesAT Mikati 4/4 10/10 Member 8/8JHN Strydom 4/4 10/10 Member 5/5 Member 3/3 ExecutivesPF Nhleko 4/4 10/10 Invitee 5/5 Invitee 3/3 Invitee 8/8RS Dabengwa 4/4 10/10 Invitee 5/5 Invitee 3/3NI Patel 4/4 10/10 Invitee 5/5 Invitee 3/3 Invitee 8/8
Group tender committee members (including independent non-executive chairman)
Members
Committeemember
since
Scheduledmeetingsattended
MLD Marole (resigned 04/08/2010) 05/2004 N/AWA Nairn (appointed as independent non-executive chairman on 01/08/2010) 08/2010 1/1RS Dabengwa 05/2004 1/1NI Patel 11/2009 0/1I Sehoole 12/2010 0/1C de Faria 06/2007 1/1J Ramadan 06/2007 1/1C Wheeler (resigned 30/11/2010) 05/2004 N/A
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27MTN Group Limited Integrated Business Report for the year ended 31 December 2010
direct access to and has regular
meetings with the chairpersons
of the Group audit committee
and Group risk management and
compliance committee. MTN now
has business risk management
functions in all of its operations
with oversight from the Group
business risk management function.
The activities of the business risk
management function are guided
by a set of policies, frameworks
and methodologies which have
been approved by the Group
audit committee and Group risk
management and compliance
committee.
Combined assurance
MTN is in the process of
implementing a full combined
assurance approach in line
with best practice and King III.
This approach will ensure that
maximum value is extracted from
the various assurance providers.
These include first line assurance
(management), second line
assurance (risk management) and
third line assurance (internal and
external audit). Assurance from
all the lines will be mapped to a
set of principle risks and will allow
Group risk management and compliance committeeThe committee identifies, considers
and monitors risks impacting the
Group and ensures compliance
with prevailing legislation and other
statutory requirements (including
voluntary corporate governance
frameworks). The committee is also
responsible for the sustainability
framework and reporting to
the Group. Three non-executive
governance and the development
of a sustainable business.
MTN is currently in the process
of implementing the King III
requirements with regards to risk
management, specifically the
aspects of combined assurance and
IT governance.
Independent business risk
management function
Business risk management is an
independent function responsible
for the disciplines of enterprise risk
management, internal audit and
fraud risk management and
co-ordination of combined assurance
across the Group. The business
risk management function has a
staff complement of more than
180 comprising risk, internal audit,
fraud risk and forensic specialists
across the 21 operating countries
of which more than two thirds are
internal audit specialists. The internal
audit discipline within business risk
management is independent from
the risk management discipline.
Business risk management is
headed by a Group executive who
reports to the Group president and
chief executive officer and has
Executive governanceThe board of directors delegates authority to the Group president and
CEO to manage the day-to-day business affairs of the Group, although
certain matters remain reserved for board and/or shareholder approval.
The CEO also co-ordinates the Group’s strategy for consideration and
ultimate approval by the board. The Group executive and steering
committee (Exco), chaired by the CEO, assists him in discharging his
duties and meets at least monthly. The delegation of authority is
reviewed periodically to ensure it remains aligned and relevant.
Exco has constituted the following subcommittees with a view to further
enhance its ability to manage and oversee operational matters: the
technical committee and the commercial committee. Both committees
were chaired in 2010 by the Group chief operating officer and comprised
at least two additional Exco members. Various other senior management
representatives of large subsidiaries attend as permanent invitees to
ensure broad representation. For further details of MTN’s corporate
governance, see www.mtn.com/Investor Relations.
directors serving on the committee
including the committee chairman
also serve on the audit committee,
to ensure that overlapping
responsibilities are dealt with in an
efficient manner.
Risk managementAs a group that operates in and
understands emerging markets,
MTN believes that risk management
and internal control are
fundamental to effective corporate
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Governance highlights continued
the Exco as well as the Group
board to get an improved view
of the mitigation of risk in the
organisation as well as the state of
the control environment.
Risk appetite
MTN’s risk appetite is determined
by the type of risk. This allows for a
more controlled way of managing
risk levels. A formal risk escalation
structure was implemented at the
end of 2009 based on MTN’s risk-
bearing capacity and a set of risk
thresholds at various levels in the
Group. Aggregation of total risk is
done qualitatively and the Group
risk management and compliance
committee assesses the
acceptability of MTN’s consolidated
risk profile.
Enterprise risk management
As far as enterprise risk management
is concerned, the business
risk management function is
responsible for ensuring the
existence of an effective framework
for risk management and driving the
implementation of this framework
throughout the Group. This is
done by assisting and advising
management on the topic and by
show commitment towards risk
management. MTN’s risk retention
levels differ from policy to policy.
IT governance
IT governance has always been an
important aspect of the control
environment in MTN, as the Group
is technology driven. However, in
line with the new chapter in King III,
MTN is in the process of improving
and formalising certain aspects
of its IT governance framework.
The Group has embarked on a
shared services model to improve
technology efficiency and cost
synergy. This will form an integral
part of the IT governance framework
in future along with aspects such as
information security, data privacy
and business continuity.
Fraud risk management
The fraud risk management function
(part of business risk management)
is responsible for assessing fraud
risk across the Group and driving
the implementation of fraud
prevention activities, which include
whistleblowing processes. Fraud
risk management is also responsible
for detecting and investigating
fraud. The Group has made good
progress with the implementation
of its fraud prevention activities. This
includes the roll out of a Group-
wide whistleblowing programme,
central fraud incident database,
fraud awareness campaigns etc. MTN
continues to see an increase in the
number of fraud cases but believes
that this is as a result of the success of
the fraud prevention and detection
mechanisms and not necessarily an
increase in fraud activity. The overall
value of fraud and theft incidents
uncovered to date is not material in
relation to the size of the Group.
MTN recognises new legislation
including the UK Bribery Act.
Although it does not apply to
MTN directly, it applies to the Group
– suppliers and finance providers.
In 2011, MTN will focus on the
following inherent fraud risk
categories from both a fraud risk
and internal audit point of view:
Procurement – conflict of interest
and collusion with suppliers
Review and/or subscriber fraud
Asset and inventory theft
Site acquisition and construction
Manipulation of billing data
Bribery and corruption
ensuring effective reporting and
escalation of risks.
The process of risk management
in the Group is guided by a risk
framework which is based on best
practice risk management procedures
and will in future form the foundation
of the combined assurance
methodology. The Group business
risk management function, together
with management, has the mandate
and responsibility of ensuring that
adequate risk management processes
are implemented in all areas of
the business in line with the risk
framework.
Insurance and risk transfer
MTN has a comprehensive insurance
programme in place which covers
perils such as material damage,
business interruption, political risk,
public liability, directors’ and officers’
liability, crime and professional
indemnity. The limits of indemnity
for these covers have been
structured to optimise the balance
between maximum potential loss
and containing premiums. MTN also
believes that risk retention and
self-insurance are necessary to keep
premiums at reasonable levels and
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Internal audit
MTN has a substantial internal
audit function (part of business risk
management) which is responsible
for providing independent internal
audit assurance to the Group. The
independence of the internal audit
discipline is maintained and internal
audit work is ultimately governed by
the Group audit committee, within
an internal audit charter. In future,
internal audit will form an integral
part of third line assurance in the
combined assurance methodology.
Internal audit activity in the Group
has increased constantly over the
past few years with total internal
audit hours in 2010 rising to 130 000
from 110 000 in 2009. Internal audit
assurance is guided by extensive
risk evaluation. Projected internal
audit hours for 2011 are in excess
of 160 000 hours. The Group is now
reaching the point where internal
audit coverage is extending to
most operations and all high-risk
processes.
Remuneration MTN believes that its ongoing success depends on employing skilled and motivated employees who deliver. To achieve this, MTN needs to ensure a strong value proposition to employees to attract and retain the necessary skills. The Group delivers this through a global remuneration philosophy stance, one which seeks to maintain an appropriate balance between the interests of stakeholders and closely aligned to MTN’s core values and philosophies which include risk awareness, meritocracy, and employee ownership.
The remuneration of executive directors and senior management seeks to balance long- and short-term objectives. Performance bonuses for Group executive management are based on key performance indicators (KPIs) including adjusted headline earnings per share and the underlying performance of operations.
For country-level executive management, short-term performance bonuses are linked to the operational and financial value drivers pertaining to the individual operations’ performance against
budget. The relative weightings of KPIs depend on country specifics. Longer-term incentives are a mix of company performance and the performance of the wider Group, and include phantom share options.
The fees for non-executive directors are considered annually and are determined in light of best practice and with reference to the time commitment and responsibilities associated with the roles.
The NRHR & CG committee will work to continuously ensure that reward offerings remain appropriately competitive, provide an incentive for performance, and take due regard of MTN’s culture, values, philosophies and business strategy. The committee will keep the existing remuneration arrangements under review during 2011, particularly taking cognisance of any additional regulatory and market-driven remuneration reform proposals.
For more details, please see the directors’ report on page 92 and the full remuneration report on the MTN website: www.mtn.com/InvestorRelations
0
20 000
40 000
60 000
80 000
100 000
120 000
140 000
160 000
180 000
Total internal audit hours
2011Projected
201020092008
95 978
111 453
134 442
166 063
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MTN Group Limited Integrated Business Report for the year ended 31 December 201030
Phuthuma Nhleko Group president and CEO
Group president and CEO’s statement
“MTN recognises the importance of evolving its business as the industry matures and consumers move towards broader product offerings.”
Leading the way
MTN recognises the importance
of evolving its business as the
industry matures and consumers
expect broader service offerings.
Even though MTN’s 21 markets are
at various stages of development,
a number of product development
and value-added service initiatives
continued to gain momentum
during 2010.
As part of positioning the Group
for the ongoing evolution in
the future, a new role, senior
vice-president commercial and
innovation, was established. The
senior VP appointed, Christian
de Faria, is now responsible for
new product development and
innovation, activities which require
a higher level of co-ordination
across the Group. The increasingly
competitive environment makes it
critical that MTN takes advantage
of products developed across its
operations.
Achieving a solid performance
in 2010
MTN performed satisfactorily in 2010
with most operations increasing
their share of the subscribers under
difficult circumstances as fierce
competition and pressure on tariffs
continued. The Group achieved
solid subscriber growth of 22% to
141,6 million with a pleasing 2,9
percentage point expansion of the
EBITDA margin to 44% excluding the
MTN Zakhele transaction.
This performance, together with
lower capital expenditure, resulted
in strong cash generation with
EBITDA less capital expenditure
increasing 108% to R31 billion.
In line with MTN’s revised
strategic priorities announced on
15 July 2010, the Group increased
cash returns to shareholders
with a dividend payout policy of
55% announced together with
the results for the year ended
31 December 2010.
MTN’s product and service
innovation is motivated by a sound
business imperative to remain
competitive, as well as a social
imperative to bridge the digital
divide. The implementation of a
common and standard service
delivery platform, accessible by
all operations, will enhance the
promotion of data and related
services. This will be complemented
by investments in undersea cables
and high bandwidth broadband
infrastructure to provide cheaper
and more inclusive access to
new data services and products.
This opens up a new space for
innovation in areas such as financial
and medical services. In 2010, the
function’s priority was to develop a
more comprehensive data strategy
for the Group’s operations. Partners,
products and process frameworks
are now better established for rapid
roll out, where appropriate, across
the Group. More details of Christian’s
responsibilities with regard to
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31MTN Group Limited Integrated Business Report for the year ended 31 December 2010
target reductions in greenhouse
gas emissions and operational costs
and also aim to mitigate the risk of
carbon taxes.
As to the Group’s increased focus
on procurement, in addition to
the responsibilities of the senior
VP commercial and innovation,
Christian de Faria is also responsible
for rapidly evolving the Group’s
procurement function to an
independent highly centralised
and more disciplined supply chain
management function. A key
feature of his role is to achieve
economies of scale and develop
strategic sourcing opportunities.
These include reverse auctions,
during which vendors enter
competitive supply bids and from
which the Group has already
recorded tangible benefits.
Enabling MTN people to thrive
MTN recognises the vital role that
a skilled and motivated workforce
plays in MTN’s success and long-
term sustainability and works to
enable its 34 558 people to thrive.
In 2010, to attract and retain
innovation are provided in the
operating and financial performance
review on page 38.
Remaining competitive
With tariffs under increasing pressure
from competition, the key to
remaining competitive is having a
high-quality network and being able
to deliver services efficiently. Therefore
the enhanced strategy also focuses
on closely monitoring infrastructure
investments to ensure appropriate
levels of capacity and availability of
networks. This incorporates continued
investment in metropolitan and
national fibre, as well as undersea
cables to service evolving voice
requirements as well as the potential
for data growth to continue on its
rapid upward trajectory. MTN believes
it made the correct decision with
regard to investing heavily in
infrastructure between 2007 and
2009, ensuring solid improvements
in network quality and giving the
Group the capacity to compete
robustly as mobile penetration
increases. However, it will monitor
developments in all its markets and
respond appropriately.
For MTN to continue to operate at
historical levels of profitability, it is
critical that the Group maintains or
reduces its cost base. This will enable
MTN to profitably service lower-
end customers as well as deliver a
different product mix. To ensure this,
a number of initiatives are at various
stages of development across the
Group.
In 2010, MTN continued optimising
efficiencies through infrastructure
sharing, the standardisation
of systems and processes, the
rationalisation of suppliers and
stricter cost management and
optimisation. This focus was,
however, sharpened through the
implementation of a structural
framework which forms part of
ongoing initiatives including a
shared-service project driven
through the senior vice-president
technology and information
systems, Jyoti Desai, who was
appointed to this position at the
beginning of 2010.
Over the past few years, MTN has
already started to achieve
some momentum on sharing
infrastructure through one-for-one
swap arrangements and some
commercial leasing of towers.
However, MTN is pleased to report
the agreement reached towards
the end of 2010 for the sale of
its towers in Ghana to a joint
venture in which it will hold 49%.
This deal – with leading owner,
operator and developer of wireless
and broadcast communication
sites, American Tower Company
– unlocks the value of the towers,
monetising cash from passive
infrastructure assets to improve
return on assets better for the
Group and enable MTN to focus
on its core business. It also helps
reduce the Group’s environmental
footprint. More details are available
in the MTN Ghana report on
page 58. Ultimately, MTN intends
to establish a tower holding
company for all of its operations
in sub-Saharan Africa.
As detailed by the chairman in his
report, MTN has numerous energy-
efficiency projects in place, and
more are being investigated. These
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MTN Group Limited Integrated Business Report for the year ended 31 December 201032
Group president and CEO’s statement continued
talent, the Group developed a new
employee value proposition that
will be rolled out in 2011, based on
independently verified employee
survey results. MTN invested more
than R246 million on training,
offering nearly 50 000 learning
and development courses to
employees, many of these
specifically designed in-house
courses. The Y’elloStars programme
continues to reward and recognise
employees who have displayed
outstanding value and contribution
to the organisation both on
a local, regional and Group-
wide basis. The Group has also
implemented various initiatives
to engage employees as well as
foster respect for diversity, equality
and representation at specific
operations.
Engaging with regulators
Continued engagement with
regulatory authorities in the
development and refinement of
the telecommunications sector
remains critical to MTN’s strategy
and occupies a significant amount
of senior management’s time
and attention. While progress
in some countries is very slow,
some Group businesses reported
encouraging advances in the year.
A highlight was the memorandum
of understanding signed with the
authorities in Syria to convert the
build-operate-transfer arrangement
to a standard mobile operator’s
licence which will significantly
improve the profitability of the
operation.
Empowering the historically
disadvantaged and extending
local ownership
2010 was also a milestone year
for MTN as the MTN Zakhele
offering was completed in
November – the largest black
economic empowerment equity
ownership deal in the South
African telecoms sector. The
R8,1 billion transaction, which runs
over six years, offered previously
disadvantaged individuals the
opportunity to buy shares in
MTN Zakhele Limited, which
ultimately holds 4% of MTN Group
Limited’s issued shares. This is just
one of the many steps MTN has
taken over the years towards
helping right the economic wrongs
of apartheid. It is part of the Group’s
efforts to ensure the sustainability
of the business and the market in
South Africa and – when combined
with previous BEE initiatives –
takes MTN’s effective indirect BEE
ownership level in South Africa
beyond 30%.
In other markets, MTN has adopted
a local approach, to better engage
with stakeholders. A degree of local
ownership of MTN’s operations
stimulates domestic economic
empowerment and local
participation in the business. In
addition, the Group’s investments
in community programmes –
including education and health
– help develop and sustain the
markets in which MTN operates.
In 2010, MTN placed a 7,8%
shareholding in MTN Zambia into
a special fund combatting HIV and
Aids.
The end of 2010 saw the beginning
of a dramatic wave of pro-
democracy protests across North
and West Africa and the Middle
East, which – at the time of writing
– had led to the toppling of at
least two long-standing political
leaders. MTN, with its strong focus
on emerging economies, will
continue to monitor events across
its markets and work to ensure the
safety of all its people, everywhere.
Changing the guard
A number of key senior
management changes occurred
in the year. Ignatius Sehoole
was appointed as vice-president
of MTN’s South and East Africa
region. He took the reins from
Tim Lowry, whose contract came
to an end in June. MTN also said
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33MTN Group Limited Integrated Business Report for the year ended 31 December 2010
goodbye to Santie Botha, who
left the Group after seven years
of distinguished service as chief
marketing officer. Marketing now
reports to the senior VP commercial
and innovation, Christian de Faria.
Ahmad Farroukh was appointed
VP for the West and Central African
region early in 2011 after acting
in the position for most of 2010
following Christian de Faria’s
change of role.
We would also like to bid farewell
and thank to Nozipho January-
Bardill, Group executive: corporate
affairs and MTN’s spokesperson.
Corporate affairs now reports to Paul
Norman, Group executive: human
resources.
After having the honour of serving
MTN as chief executive since July
2002, the time has come for me,
too, to pursue other challenges.
I would like to thank all MTN’s
stakeholders – customers,
employees, partners, management
and the board of directors,
governments and regulators,
suppliers, as well as investors – for
their support over the years. May
you continue to encourage the
Group to deliver the best value
proposition in the market.
Way back in 1961, Nobel Peace
Prize winner Chief Albert Luthuli
recognised that “the world is now
a neighbourhood”. Although I
am leaving the forward-looking
comments to incoming CEO
Sifiso Dabengwa, I have no doubt
that in the years ahead MTN will
work to facilitate this growing
neighbourhood, guiding the way
with innovative mobile offerings to
make people’s lives easier, wherever
they are.
Phuthuma Nhleko
Outgoing president and
chief executive officer
March 2011
Phuthuma Nhleko
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MTN Group Limited Integrated Business Report for the year ended 31 December 201034
Group executive and steering committeeat 31 December 2010
1.
4.
8.
2.
5.
9.
3.
6.
10.
7.
11.
35MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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1. PF Nhleko*
2. RS Dabengwa*
3. NI Patel*
4. C de Faria (54) (French) | Degree in Finance Administration (CA)Senior vice-president – Commercial and innovation
Other committee membershipTender committee.
DirectorshipsDirector of various companies in the MTN Group, MTN Dubai and Uniglobe SA in France.
Skills, expertise and experiencePrior to joining MTN Group in 2006, Christian was CEO of PT Excelcomindo Pratama, known as XL, the largest mobile operator in Indonesia. Before joining XL, he was CEO of Telekom Malaysia International now known as Axiata, responsible for international strategy and involved in the rapid growth of investments in Sri Lanka, Bangladesh and Cambodia. From June 2006 until May 2010, Christian was the vice-president for MTN West and Central Africa. Since June 2010 he has had responsibility for the transformation of the supply chain function within the MTN Group. He is also leading the way in products, services and innovation at Group level as well as being responsible for Group marketing.
5. JA Desai (53) | BA (Hons) BComSenior vice-president – Technology and information systems
Other committee membershipCommercial committee.Technical committee.
DirectorshipsDirector of various companies in the MTN Group.
Skills, expertise and experienceJyoti started her career at The Standard Bank of SA Limited. She moved to Telkom SA in an executive position before joining MTN Nigeria as chief information officer. She then moved to Iran in 2005 to start up the Iran operation as COO of MTN Irancell before taking up her current role.
6. S Fakie (57) | BCom, BCompt (Hons), CA(SA)Executive: business risk management
DirectorshipsDirector of various companies in the MTN Group.Director of Absa Group Limited.
Skills, expertise and experienceShauket has over 36 years’ experience in accounting, auditing, consulting and advisory work. In 1999, he was appointed Auditor-General of South Africa for a seven-year term which ended in November 2006.
7. A Farroukh (50)** (Canadian) | Masters in Business Administration & Accounting and also a Certified Public Accountant in the USAActing vice-president: WECA Region and CEO of MTN Nigeria
DirectorshipsDirector of various companies in the MTN Group.
Other committee membershipCommercial committee.
Skills, expertise and experienceAhmad previously worked for Mediterranean Investor Group, KPMG, Deloitte & Touche and the Investcom Holding Group. Ahmad was also an
accounting lecturer at the American University of Beirut Prior to his appointment at MTN, Ahmad was managing director of Scancom Limited (Investcom Holding Group), Ghana and regional manager for West Africa covering Benin, Liberia, Guinea Bissau and Guinea Conakry. As CEO since July 2006, Ahmad has made significant contributions to the extraordinary growth of MTN Nigeria.
8. PD Norman (45) | MA (Psych)Group executive: human resources & corporate affairs
DirectorshipsDirector of various companies in the MTN Group.Trustee of the Chartered Accountants Medical Aid Fund.
Skills, expertise and experiencePaul has been an executive at MTN since 1997. He has spent 20 years in the field of human resources and has worked extensively in the transport and telecommunications industries. He was awarded HR Practitioner of the Year in 2004 by the Institute of People Management.
9. J Ramadan (54) (French and Lebanese) | MA (Inf Tech)Regional vice-president – MENA region
Committee membershipTechnical committee. Tender committee.
DirectorshipsDirector on the boards of all MTN MENA region operations and MTN Dubai.
Skills, expertise and experienceJamal was an executive director of Investcom LLC, which he joined in 1996 as operations director. Prior to
that, he was director of IT at FTML (a subsidiary of France Telecom), operating in Lebanon.
10. I Sehoole (51) | BCom, BCompt (Hons), CA(SA), Cert in Theory of AccountancyRegional vice-president – SEA region
Other committee membershipTender committee.
DirectorshipsDirector on the boards of all MTN’s SEA region operations. Public Investment Corporation and Accounting Standards Board.
Skills, expertise and experienceIgnatius also serves on various committees within PIC. He was the chairman of The Developing Nations Committee of The International Federation of Accountants (IFAC). He was previously a managing director of Inland Region at Fedics (Pty) Limited, senior executive at Murray & Roberts Holdings (Pty) Limited and also the executive president of the South African Institute of Chartered Accountants (SAICA).Ignatius had served as a member of the King Committee and was also the Chairman of National Treasury Audit Committee until March 2010.
11. KL Shuenyane (40) | B Econ and Internat Stud; CA (England and Wales)Group executive: mergers and acquisitions
DirectorshipsDirector of various companies in the MTN Group.
Skills, expertise and experienceKhumo was head of direct investments and a member of the executive committee of Investec’s South African operations. He was previously a member of Investec’s corporate finance division.
*Profiles appear on pages 20 to 22 of this report.**Appointed as VP of WECA region post year end.
PROOF 1 5 April 2011
36
37
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Operational and financial performance review
Five-year review
Glossary
MTN continually seeks to enrich the lives of people across our footprint. We serve a colourful spectrum of consumer segments that are each individually unique and valued.
That is why MTN invests in a wide range of products and services to meet the needs of our diverse customer base.
MTN Group Limited Integrated Business Report for the year ended 31 December 201038
Sifiso Dabengwa Group chief operating officer
Operational and financial performance reviewfor the year ended 31 December 2010
“Most operations increased their share of the subscriber market, notwithstanding fiercer competition and pressure on tariffs.”
and catering for their evolving
needs in order to sustain market
share. Cost control has also become
more important to maintain the
profitability of the business. In 2010,
the Group increased its EBITDA
margin by 2,9% to 44%, excluding
the MTN Zakhele transaction.
MTN continues to consider its mix
of operations as the performance
in South Africa, Nigeria and Iran
remains key to the Group’s results.
Ghana and Syria are the two next
largest operations by revenue and
are therefore also described in
more detail in the pages that follow.
The impact of the conversion of
the BOT in Syria to a full licence
will be positive for increasing
Syria’s contribution to EBITDA.
The upfront licence fee and lower
revenue share change the EBITDA
margin positively for the operations.
The management of the various
operations is bolstered by a regional
focus headed by the three regional
VPs. The three largest countries
Sound operational and financial
performance
MTN Group performed well in
2010 under challenging market
conditions and despite being
negatively impacted by the
strong rand. As more than 68% of
MTN’s revenue is generated outside
South Africa, the translation into
rand of the 2010 results had a
significant impact on final reported
figures. Most operations increased
their share of the subscriber market,
notwithstanding fiercer competition
and pressure on tariffs with the
Group achieving a 22% increase
in subscribers to 141,6 million.
However, the growth in subscribers
is slowing as penetration increases
and markets become more
competitive. Constant currency
revenue growth of 14% was still
relatively satisfying. Penetration
into lower usage segments of the
markets and to a lesser extent lower
tariffs, have, however, shifted the
attention of the business model to
focus on knowing your customer
contribute 61,6% to the total Group
subscribers and 58,8% to the total
proportionate subscribers.
Subscriber mix (%)
� South Africa� Nigeria� Iran� Rest
13,3%
27,3%
21,0%
38,4%
Proportionate subscriber mix
� South Africa� Nigeria� Iran� Rest
17,6%
27,5%
13,6%
41,3%
39MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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money transfer groups , including
Western Union, to capitalise on the
market for international remittances.
The Group has also launched
initiatives to engage with the African
diaspora so that they choose MTN as
their remittance partner.
2010 marked a real shift in the role
of data in the mobile market for
MTN. The increasing affordability, or
what some call “democratisation”,
of data-capable handsets has
given more consumers access to
these smartphones. The take-
off in the use of social media,
has further stimulated demand.
Appropriate bandwidth and good
quality content are necessary
to meet customer demand. In
2010, MTN continued to invest
in capacity on various undersea
cables and in fibre roll out. In
August, MTN linked in to EASSy
(the Eastern Africa Submarine
Cable System), after gaining partial
access to the EIG (Europe India
Gateway) system in February. This
will allow both MTN and customers
to benefit from lower bandwidth
costs assisting with the growth in
data solutions.
Elections in November 2010 in Côte d’Ivoire resulted in a prolonged standoff
between the presidential candidates causing widespread disruption. Our
results were not impacted in 2010, but contrivation in 2011 is expected to
have some negative impact on the operation.
Benefiting from a clearly defined operational framework
These results were underpinned by a clearly defined operational framework
which has and will continue to benefit operations going forward.
Operational framework
PRODUCTS AND VALUE-ADDED
SER
VICE
S —
—�
BRA
ND
PRE
FEREN
CE ——�
QUALITY SERVICE ——� EFFICIENT DISTRIBUTION ——�
SEGM
ENTATIO
N —
—�
EXPERIENCED PEOPLE ——�
CUSTOMER EXPERIENCE
EX
TE
RN
AL IN
TE
RN
AL
Regulatory re
quirem
ents
Evo
lvin
g co
mpe
titive
landscape
Changing fi nancial framew
ork
With the customer at its centre, MTN’s operational framework focuses on working
to provide the best experience for each of the Group’s 141,6 million subscribers.
We believe that the starting point for our operational framework is the Group’s
segmented approach to the market, which offers customers products and
services appropriate to each particular
sector. In the year, MTN worked to
develop a more sophisticated
customer segmentation model. This
not only provides customers with
wider product options but also allows
MTN to penetrate low usage
segments while ensuring efficient
network utilisation.
Ensuring the right products and
value-added service offering
are vital to operational success.
In addition to establishing new
revenue streams, a more holistic
offering is a critical element for
maintaining market share and
growing competitive advantage.
In 2010, MTN continued to roll out
MobileMoney, which had 4,3 million
customers by year end. The Group is
working to expand the functionality
of this service, now available in
11 markets. It is developing a
network of merchants in order that
MobileMoney substitute banks in
places where the banking system is
underdeveloped and where credit
cards are not widely used.
MTN recently entered into a
partnership with three established
MTN Group Limited Integrated Business Report for the year ended 31 December 201040
Operational and financial performance review continuedfor the year ended 31 December 2010
Recognising that product and
service innovation is essential
to keep data growth on a sharp
upward trajectory, MTN established
the Group-level innovation
function in the year, as mentioned
by the CEO. It compiled a roadmap
of MTN’s data and smartphone
strategy, the network capability
required to support it, as well as
the Group’s strategy to ensure that
those customers who currently do
not use the internet get connected.
In pursuit of better applications
and progressively richer and more
relevant content, MTN is now
entering various partnerships with
suitable content providers.
MTN has identified the need to
deliver cloud computing (where
software and information are
provided over the internet) to
service small- and medium-sized
corporate customers. The Group
is also working on introducing
near-field communication, whose
potential future applications
could include electronic ticketing,
electronic money, electronic keys,
identity documents and so forth.
Quality of service and timeously,
efficiently and effectively
investing and upgrading of
networks and IT technology –
whether it be reliable, clear voice
or sophisticated data products
– are critical to delivering on the
customer promise in large markets
and small. In addition to the heavy
infrastructure investments made
in 2008 and 2009, MTN invested
a further R19,5 billion in network
infrastructure in 2010 which has
enabled operations to maintain
and/or improve in the quality
of their networks. The systems
to support future products and
services will increasingly go beyond
traditional transmission, core and
radio networks.
Efficient and deep distribution is
also an important determinant of
success: if customers have to travel
far, or to inconvenient locations to
buy airtime, they will be less inclined
to do so. MTN recorded significant
improvements in distribution in the
year with more electronic recharge
options and a refined distribution
framework to ensure a deep
and broad distribution footprint,
the right locations and a quality
experience at all customer touch
points while also ensuring that
commission structures to dealers
are managed efficiently.
Experienced people are an
essential part of MTN’s competitive
advantage, and the increasing
number of mobile licences across
the footprint means the necessary
skills are in demand. MTN Group
continuously works to offer the best
employee value proposition in the
industry and safeguard its key talent.
It benefits from the numerous
training programmes delivered by
the MTN Academy and through
the Group’s e-learning platform.
In 2010, MTN rotated a number
of senior employees between
different operations, facilitating a
greater sharing of knowledge and
experience, and helping develop
employees’ careers.
Brand preference often determines
whether or not a customer
joins or stays with a network.
MTN’s sponsorship of the 2010 FIFA Nazir Patel Group chief financial officer
41MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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World Cup™ greatly supported brand perception in the year, differentiating
and propelling it decisively into the global brand arena. At the time of
writing, MTN had just been ranked as Africa’s most valuable brand, and the
only African global brand in the 2011 BrandFinance Global 500. The Group’s
efforts to understand its customers’ motivation, needs, aspirations and values
have been important in developing customer satisfaction, brand loyalty and
sustainable success. These are core to the brand’s promise and success.
Delivering on MTN’s financial framework
To sustain MTN’s momentum, MTN further developed its financial framework
in the year.
Impact on financial framework
Group revenue
up 14% to R127 billion
(constant currency)
CONTINUED ORGANIC GROWTH
CAPEX SPEND “PEAKED”
Group spend
Down 38% to R19,5 billion
COST EFFICIENCIES
EBITDA margin
Up 2,9% points to 44,0%
55% dividend
payout ratioSHAREHOLDER RETURNS
OPPORTUNISTICM + A
*Approximate FCF
Up 108% to R31,0 billion
INCREASED CASH GENERATION
MTN has shown delivery on its
financial framework due to the
strong operational performance,
allowing the Company to pay 55%
of adjusted headline earnings per
share, taking the dividend yield to
4%, a significant increase from a
year ago. For ease of understanding
the underlining operational
performance, the impact of
MTN Zakhele has been excluded,
and has been separately detailed
where appropriate. The total cost
of the transaction, together with
the related ESOP scheme, was
R2,9 billion which is included in
EBITDA for statutory purposes.
Due to the strong rand, the
contribution of South Africa
increased relative to other
operations. MTN’s earnings and
EBITDA continue to be dominated
by South Africa and Nigeria which
currently make up 60,4% of total
revenue and 70% of EBITDA. Due
to local shareholding levels, this
changes when calculated on a
proportionate basis to 53,4% of
revenue and 59,3% of EBITDA.
Data and SMS revenue ZAR (billion)
Ghana Iran (49%)
SyriaNigeriaSouth Africa
��Data ZAR ’000��SMS ZAR ‘000� Data (including SMS) as % of revenue
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
12
3 638
2 490
538109
1 009
288 178
1 633
297447
5
7
20
11
19
*EBITDA – Capex (approximate free cash flow)
MTN Group Limited Integrated Business Report for the year ended 31 December 201042
Profit analysis
(ZAR million) 2010 2009Variance
%
Constant currency variance
%
Revenue analysis
Airtime and subscription 78 400 76 814 2
Interconnect 17 012 19 516 (13)
Data* 6 206 4 182 48
SMS 6 570 5 437 21
Connection fee 544 605 (10)
Mobile telephones and accessories 3 678 3 279 12,2
Other 2 274 2 114 7,7
Total revenue 114 684 111 947 2,5 14
Direct network operating costs 16 818 15 925 5,61
Costs of handsets and other accessories 6 819 6 297 8,29
Interconnect and roaming costs 12 593 15 166 (16,97)
Employee benefits costs 5 961 5 843 2,02
Selling, distribution and marketing expenses 14 741 14 649 0,63
Other 7 242 8 004 (9,52)
Total 64 174 65 884 (2,6)
EBITDA (excluding MTN Zakhele) 50 510 46 063 9,7 23
EBITDA margin % (excluding MTN Zakhele) 44,0 41,1 2,9 points
MTN Zakhele costs 2 973
EBITDA (including MTN Zakhele) 47 537 46 063 3,2
Operational and financial performance review continuedfor the year ended 31 December 2010
Capital expenditure (ZAR million) 2010 2009
Authorised 2011
South and East Africa 5 421 8 645 5 676
West and Central Africa 9 919 16 518 10 723
Middle East and North Africa 3 402 5 785 4 871
Head office companies 724 300 861
Total 19 466 31 248 22 131
*In the AFS on page 141, MTN Business Solutions is included in other revenue for 2009.
43MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Revenue analysis
In 2010, most operations reported
strong organic growth as existing
businesses increased their
numbers of subscribers (albeit at
reduced marginal average revenue
per user), leading to good gains
in revenue in local currency.
Subscriber numbers increased
by 22% to 141,6 million. MTN’s
reported results were dampened
by the rand’s gains against the
currencies of the Group’s main
operations. The average Ghanaian
cedi exchange rate dropped 18%
versus the rand, the Iranian rial
lost 17% and the Nigerian naira
was 16% weaker. Total revenue
increased 2,5% to R114,7 billion. On
a constant-currency basis, revenue
grew 14%.
The regulatory reductions in
mobile termination rates in South
Africa and Nigeria caused a 13%
drop in the Group’s interconnect
revenue, but higher on-net
traffic offset some of the decline.
Revenue received a boost from
a 48% increase in data revenue,
albeit off a low base. The pricing
of access to MTN networks was
lift earnings before interest, tax,
depreciation and amortisation
(EBITDA) by 9,7% to R50,5 billion.
Reported results were negatively
affected by the strong rand. Had
currencies remained unchanged in
the year, the EBITDA increase would
have been 23%.
The Group’s EBITDA margin grew
by 2,9 percentage points to 44%,
driven mainly by margin expansion
in Nigeria, Iran and South Africa
(as well as improvements in
Afghanistan, Syria and Zambia
and despite margin deterioration
in Sudan, Cameroon and Benin).
This figure excludes the effect of
MTN Zakhele. Without excluding
this, the margin would have been
41,4% in the year.
The most notable cost
achievements in the year were the
selling, distribution and marketing
costs up only 0,63%; interconnect
cost down 18%. Despite the lower
interconnect revenue in the year,
the increase in on-net traffic had
a positive impact on the margin
contribution of interconnect
to the Group following mobile
termination rates cut in Nigeria
and South Africa. Supply chain
decreases (as the strategy to
pursue more passive infrastructure
sharing continued to bear fruit),
the benefits of shared services
and outsourcing, as well as
standardisation and optimisation
of systems and processes
are expected to only make a
meaningful impact in the years
ahead. Details on these initiatives
are provided in the chief executive
officer’s report.
MTN reduced capital expenditure
(capex) in most operations after
2009’s peak spending. Total
capital expenditure for the year
was R19,5 billion, down from
R31,2 billion. The final capex figure
was also helped by the stronger
rand, leading to a R2,3 billion
saving, as well as reductions in the
price of capital equipment. The
ratio of capex to revenue fell to
17% from 28% in 2009. For 2011,
the Group has authorised capex
of R22,13 billion, with increases
planned mainly for Nigeria, Syria
and other MENA operations.
reduced in the year, resulting in
a 10% decrease in connection
fee revenue.
The strong showing in data
growth was led by MTN South
Africa, where the Group reported
revenue of R3,6 billion from
data and R2,49 billion from
SMS. Together they accounted
for 17% of MTN South Africa’s
revenue. MTN South Africa also
recorded sales of R1,2 billion from
MTN Business, up from R0,86 billion
in 2009. In Iran, SMS revenue and to
a lesser extent the uptake of GPRS
services lifted the contribution
of data and SMS to MTN Irancell’s
revenue to 20%. MTN Nigeria also
showed a growing contribution of
data in the year.
Numerous initiatives – in terms of
technology enhancements, network
capacity and product development
– to further bolster the role of data
in MTN’s revenue mix are detailed
later in this report.
The higher revenue figures, coupled
with good control of operational
costs and other efficiencies, helped
MTN Group Limited Integrated Business Report for the year ended 31 December 201044
Operational and financial performance review continuedfor the year ended 31 December 2010
Interest, tax and depreciation
Net finance costs (ZAR million) 2010 2009
% variance
Net interest paid 1 925 2 201 (12,5)
Net forex losses 924 1 106 (16,5)
Functional currency losses 1 223 3 204 (61,8)
Put option 22 (701) (103,0)
Total 4 094 5 810 (29,5)
Tax (ZAR million) 2010 2009
% variance
Normal tax 7 834 6 425 21,9
Deferred tax 1 984 992 100,0
STC and other withholding tax 1 450 1 195 21,3
Total 11 268 8 612 30,8
Effective tax rate (%) 36,3 33,4 1,7 pts
Effective tax rate including MTN Zakhele (%) 40,1
Net finance costs decreased by
29,5% to R4,1 billion in 2010 from
R5,8 billion, due to a 61,8% reduction
in functional currency losses to
R1,2 billion at the end of December
2010. This was following capital
restructuring of subsidiary holding
companies. Functional currency
losses relate to the foreign currency
cash balances in Mauritius and
reduced by 16,5% to R924 million.
The Group’s effective tax rate
increased to 36,3% from 33,4% in
2009. This was mainly the result of
the additional secondary tax on
companies (STC) on the maiden
interim dividend and the reduced
effect of the Nigerian put option
on profit before tax. The decrease
in the Nigerian investment
allowance as a result of reduced
capital expenditure in that country
also contributed to the higher tax
rate. On including the impact of
MTN Zakhele, the effective tax rate
increased to 40,1% due to the non-
deductibility of these expenses.
The Group’s depreciation charge
increased by 12% to R13,2 billion
for 2010. This was mainly the result
of the impact of the first full year
of depreciation in respect of the
significant 2009 capital expenditure
programme.
Earnings per share
After excluding the impact of
MTN Zakhele, adjusted headline
earnings per share (HEPS) increased by
20,5% to 909,1 cents. These adjusted
figures exclude the impact of the put
options in respect of subsidiaries.
Minority or non-controlling interests
remained stable at R2,5 billion
because of lower rand earnings
from the Group’s non-South African
operations and an increased
contribution by the South African
operation to Group profit after tax.
Balance sheet highlights
Net cash
The Group’s cash and cash
equivalents increased R12,8 billion
at year end, mainly the result of the
R11,7 billion reduction in capital
expenditure in 2010. This was
also a key driver of the increase
in approximate free cash flow for
the period to R31,0 billion from
R14,9 billion in 2009. The increase
in cash and cash equivalents,
combined with marginally lower
EBITDA margin reconciliation (%)
Nige
ria
Sout
h Af
rica
Iran
Ghan
a
Othe
r
2010
CR FX
2010
2009
2010CR is at constant prior year FX rate
41,1
1,10,7
0,4 0,1
1,3 44,5 0,544,0
+2,9 pts
+2,9 pts
45MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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gross debt levels, resulted in a net
cash position of R905 million at
end-December 2010, compared to a
net debt position of R12,2 billion in
2009. This enabled the Group, in the
absence of compelling acquisition
opportunities, to meet the
objective of its financial framework
by ensuring greater returns to
shareholders by way of increased
dividends.
Looking forward
MTN is relatively confident of its
ability to balance the need to
increase returns to shareholders,
while taking advantage of suitable,
value-accretive acquisitions.
But as regulation and competition
continue to intensify, revenue
growth from traditional sources
is likely to slow. The Group
will therefore work to counter
this decline by leveraging
opportunities for data growth
and facilitating an increase in the
availability of smartphones. It will
continue to have a segmented
approach to the market, offering
sector-specific products and
services to customers. Despite
increasing mobile penetration,
the Group believes there is still
opportunity to extend voice
and data services to those who
do not currently use a mobile.
MTN acknowledges the role ahead
of partners to further develop
value-added services.
Effective network investment and
rollout is a priority to ensure that
network quality remains one of
MTN’s key competitive advantages.
The Group will continue to
upgrade and optimise networks to
meet increased demand for data
services and has approved capital
expenditure of R22,1 billion for 2011.
EBITDA margin expansion remains
an important goal, but necessitates
greater efficiencies and is greatly
affected by the mix of the various
operations’ contributions. MTN will
continue to evaluate individual
markets for opportunities to share
both passive infrastructure and
fibre, with benefits for the Group’s
environmental footprint as well
as costs.
In the year ahead, MTN will
leverage the new structural
framework formed for key projects
including cost-effective platforms
for delivery of data and services;
the ongoing standardisation of
systems and processes; increased
centralisation of procurement
activities and rationalisation of
suppliers; and shared services and
outsourcing. Rather than follow a
“big bang” approach, the Group
plans to establish successful shared
services and outsourcing models in
certain markets, before extending
them to other operations.
MTN will continue to investigate
options to improve sustainable
returns to shareholders now that a
higher dividend payout policy has
been adopted. It will also engage
with authorities to sustain the social
and commercial success of the
telecommunications sector.
The Group expects net additions
of 16,9 million subscribers in 2011,
led by growth in Nigeria, Iran and
South Africa.
Subscriber net additions guidance for 2011
Net additions 000’s
South Africa 2 000
Nigeria 4 200
Ghana 390
Iran 3 350
Syria 600
Rest 6 385
Total 16 925
For more details on the outlook for
each of MTN’s top five operations,
please read the country reports in
the pages that follow.
Sifiso DabengwaGroup chief operating officer
Nazir PatelGroup chief financial officer
March 2011
Sifiso Dabengwa
Nazir Patel
MTN Group Limited Integrated Business Report for the year ended 31 December 201046
Operational and financial performance review continuedfor the year ended 31 December 2010
Profit analysis December
2010Rm
December 2009
Rm%
change
Revenue analysis
Airtime and subscription 19 297 17 885 8
Interconnect 6 568 7 271 (10)
Data 3 638 2 475 47
SMS 2 490 2 021 23
Connection fee 73 69 7
Mobile telephones and accessories 3 130 2 870 9,1
Other 626 558 12,3
Total revenue 35 822 33 149 8,1
Direct network operating costs 2 569 2 319 10,8
Costs of handsets and other accessories 4 677 4 173 12,1
Interconnect and roaming costs 5 483 6 400 (14,3)
Employee benefit costs 1 767 1 576 12,1
Selling, distribution and marketing costs 6 794 6 832 (0,6)
Other expenses 2 345 1 439 62,9
Total operating expenditure 23 634 22 739 3,9
EBITDA 12 188 10 410 17,1
EBITDA margin (%) 34,0 31,4 2,6
Capex 3 908 6 034 (35)
Capex as percentage of revenue 11 18 (7)
MTN South Africa
Launched
June 1994
Market share
36%
Mobile penetration
105%
Population
50,2 million
Forecast market size in 2015
63 million
MTN shareholding
100%
“Strong uptake of MTN South Africa’s expanded data offerings, supported by a world class network, led to growth of 47% in data (excluding sms) revenue”
47MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Subscribers (’000)
0
4 000
8 000
12 000
16 000
20 000
2010200920082007
��Prepaid��Postpaid
2 7542 493 3 023 3 365
15 47718 842
16 06717 169
14 799 13 044
14 415
12 306
Net additions (’000)
-1 500
-750
0
750
1 500
2 250
3 000
2010200920082007
-1 164
1 035
1 7402 775
2 370
62
2 1441 579
791946
1 198
- 1 102
��H2 ��H1
hybrid packages (which give contract
customers a fixed monthly fee, with
an option to “top up” with prepaid
offerings if required) was partly offset
by a fall in classic packages.
MTN South Africa’s revenue grew
by 8% for the period, driven
mainly by 8% growth in airtime
and subscription revenue. Strong
uptake of MTN’s expanded data
offering (supported by a world-class
network) led to growth of 47% in
data (excluding SMS) revenue. This
trend is expected to continue as data
services become more accessible
and smartphones more affordable.
The strong growth in data was
partly offset by a 10% decrease in
interconnect revenue in the year
as the first reductions in mobile
termination rates (from a peak
rate of 125 to 89 cents) came into
effect in March 2010. Following the
Operational and financial
performance
MTN South Africa achieved a strong
and encouraging performance in
2010 in a challenging environment
of increased competition and a
mature market having more than
100% mobile penetration. The
economy recovered slowly from
the recession, while interest rates
and inflation declined. However,
unemployment and consumer debt
levels remained stubbornly high.
MTN South Africa increased its
market share to 36% from 32%,
underpinned by strong growth
in the prepaid segment, a stable
network and improved billing,
better distribution as well as a firm
focus on appropriate segmented
product offerings to customers. The
MTN brand was greatly supported
by the Group’s affiliation to the 2010
FIFA World Cup™ and the continued
success of the Ayoba advertising
campaign.
Subscribers increased by 17,3% to
18,8 million, mainly as a result of the
18,6% increase in prepaid users to
15,5 million in the year. The strong
value propositions in this segment,
including the enhanced MTN Zone
and prepaid data offerings, were a
considerable contributor to growth.
It should be noted, however, that
growth in the prepaid sector was
off a lower subscriber base in
2009, following disconnections
related to the implementation
of the regulatory process in that
year to register subscribers’ details.
MTN South Africa believes the
prepaid base is now more resilient.
The postpaid segment (which
includes hybrid users) increased by
11,3% to 3,4 million at the end of
December 2010. The greater use of
MTN Group Limited Integrated Business Report for the year ended 31 December 201048
Operational and financial performance review continuedfor the year ended 31 December 2010
Data revenue ZAR (million)
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
2010200920082007
As % of SA revenue (excluding handsets; including SMS) 11,0 12,4 14,8 19,0
��H2 ��H1
1 900
1 6962 052
2 919
3 209
2 444
1 221
1 535
3 596
4 496
6 128
2 756
Capex ZAR (million)
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
2010200920082007
Capex as % of revenue 10,1 15,0 18,2 11,0
��H2 ��H1
2 894
3 000
1 294
1 549
3 096
3 034
1 014
1 772
3 908
6 034
4 868
2 843
MTN South Africa continued
MTN South Africa’s EBITDA margin
increased 2,6 percentage points
to 34,0%. This was attributable to
increased data and prepaid revenue
and a rise in on-network traffic
which resulted in interconnection
costs reducing by more than the
reduction in interconnection
revenue. Margins were also
positively affected by relatively
lower distribution costs, changes in
the licence fee terms and improved
collections on international
roaming, assisted by the presence
of international visitors to the 2010
FIFA World Cup™.
Effective and efficient network
and IT investments and
upgrades
MTN South Africa continued to
invest in and upgrade its network,
rolling out 369 3G and 284 2G
BTSs in the year, and bringing
publication of the final termination
regulations in October 2010,
reductions will continue until both
peak and off-peak rates are at
40 cents in March 2013.
Prepaid average revenue per user
(ARPU) increased to R112 a month
from R100 because of an increase
in the percentage of revenue-
generating subscribers in the
reported base and an increase in
spending on data. Postpaid ARPU
declined R36 to R329 a month as
users continued to feel the pinch
of the tight economic conditions,
reducing their out-of-bundle
spending and increasingly opting
for hybrids over traditional postpaid
packages. The reduction in postpaid
ARPU was also a result of the
increased number of telemetry SIMs
in use.
the total BTS count to 8 912. At
R3,91 billion, capital expenditure
dropped to 11% of revenue, from
18% (R6,03 billion) in 2009 that
marked the peak in the company’s
efforts to modernise and expand
core capacity. MTN’s 3G coverage
grew to 49% of the population,
in support of the growing data
revenue opportunity.
As part of the IP-migration strategy,
the company embarked on
migrating the various voice bearer
interfaces to internet protocol,
allowing for enhanced scalability
and network simplicity from a
backbone perspective.
To further support the network,
MTN advanced its self-provisioning
efforts for transmission, completing
the southern and northern
Gauteng metropolitan rings, which
49MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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adjusted based on historical traffic
levels by cell site.
MTN South Africa continued to
focus on the timely introduction
of appropriate devices to meet
customer requirements and
reinforce its leadership position.
With the ZTE S308, an ultra-low-cost
handset priced below R100 was
introduced, while at the other end
of the spectrum the launch of the
Apple iPhone was a milestone in
MTN’s smart device portfolio. The
Sony Ericsson W205 offered unique
football content and accessories for
the 2010 FIFA World Cup™.
Efficient distribution and a good
customer experience
Good and diverse distribution
was a key contributor to a better
overall performance. Increasing the
distribution footprint, ensuring an
appropriate location and customer
experience remain MTN’s key
objectives. MTN closed 42 MTN-
owned stores and converted
73 owned stores to franchisees. At
year end, there were 448 stores,
a third of which were owned by
MTN. The company also launched
a new dealer commission model
and benefited from regional
segmentation and a closer focus on
the top contributing distributors.
Sustaining our success
A highlight of 2010 was the
improvement in MTN South
Africa’s black economic
empowerment (BEE) rating to
level 3 from level 5. Elements that
contributed to the improvement
were enterprise development,
socioeconomic development
and preferential procurement.
MTN’s preferential procurement
comprise 220km of fibre. The rings
are carrying the core needs in the
Gauteng region and have proven to
be stable.
In November, MTN South Africa
was awarded the “best network
improvement” award at the
AfricaCom awards. It also won
the award for the “best marketing
campaign” for the Ayoba campaign,
the pervasive nature of which
contributed greatly to getting South
Africans excited about the 2010 FIFA
World Cup™.
Ensuring the right products and
value added services
Greater use of 3G data cards,
smartphones and telemetry
(machine-to-machine
communication, including vehicle
tracking) contributed to increased
take-up of secondary SIM cards in the
year, during which MTN launched
a prepaid data value proposition
and also revised its postpaid data
offering. More customers started
using their phones for email and
to surf the net, with almost half
the subscriber base using packet
data in the year. MTN South Africa’s
subscriber base used 1,6 million
smartphones and nearly one million
modems. At just 9%, South Africa’s
internet penetration rate means
there is considerable room for data
use to grow.
MTN Zone was the most preferred
prepaid price plan, ending the year
with over 9,6 million customers
as a result of the Mahala4Life
campaign. Being able to attract
most of MTN’s prepaid base to
MTN Zone allowed for better control
of effective rates and network
utilisation as discounts could be
MTN Group Limited Integrated Business Report for the year ended 31 December 201050
Operational and financial performance review continuedfor the year ended 31 December 2010
MTN South Africa continued
share incentive scheme. Employees
continued to benefit from the
activities of the MTN Academy,
with MTN South Africa employees
participating in training during
the year.
The MTN South Africa Foundation
maintained its focus on helping
develop rural communities
where there are high rates of
unemployment, poor education
and lack of healthcare resources. Its
efforts remained concentrated on
programmes aimed at improving
education and health, stimulating
arts and culture and facilitating
entrepreneurship, and so providing
communities with the tools to
shape a brighter and more self-
sustaining future.
The company also co-ordinated
employee volunteerism efforts,
harnessing the intellectual
capacity, financial generosity and
community spirit of the MTN
South Africa workforce. Special
projects in the year included
support for 16 Days of Activism
Against Women and Child Abuse
campaign as well as the Women
in Arts programme. The 21 Days of
Y’ello Care campaign forms part of
a culture of giving that spans 365
days of the year.
In pursuit of a lower carbon
footprint, in August MTN unveiled
a first-of-its-kind tri-generation
plant to produce power and
recycle water at the 14th Avenue,
Fairland, campus. The plant uses
clean-burning methane gas to
generate electricity and, through a
second re-absorption chiller cycle
using the waste heat, generates
water for the air-conditioning
systems in MTN’s buildings. The
water from the six huge cooling
towers is used to cool down the
heat from the engines. As it is
not used in the absorption cycle,
this “grey water” is then recycled
for facility use. All the plant’s
processes have been designed
to result in savings in water and
electricity costs. This 2MW plant
complements the more than
20 solar, wind, biogas and hybrid-
powered BTS sites and switches
across South Africa. MTN also
retained its ISO 14001 status and
is working towards US-based
leadership in energy efficient
design (LEED) status in 2011.
Engaging with the industry
regulator
MTN continued to work to meet
the requirements of the Regulation
of Interception of Communication
and Provision of Communications
Related Information Act (RICA), and
by year end 81% of prepaid users
strategy includes commitment
plans and inclusion of B-BBEE in
the tender adjudication process.
This resulted in more than
86% procurement spend with
B-BBEE-compliant suppliers, of
which more than 26% was from
black women-owned enterprises.
To further improve the B-BBEE
performance, more emphasis will
be placed on empowerment of
black women-owned enterprises
and small- and medium-size
enterprises. MTN is also reviewing
some initiatives where it can
invest in enterprise development.
The MTN Zakhele transaction,
facilitated by the Group, will
further enhance MTN South
Africa’s BEE ownership credentials.
In addition to MTN Zakhele,
MTN Group also issued 0,1% of its
issued ordinary share capital to level
1 and 2 employees as an employee
51MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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and 71% of postpaid subscribers
had been registered. The deadline
for outstanding RICA requirements
was extended from 31 December
2010 to 30 June 2011.
Looking ahead
With sharp hikes in electricity and
fuel prices forecast, South African
consumers will continue to be
under pressure. This, together with
increased competition and further
reductions in mobile termination
rates, will likely weigh on MTN South
Africa’s revenue.
In a mature market, 3G data services
and smartphones and partnerships
in the mobile content and
application space will be key drivers
of revenue growth. This growth
will come not only from higher-
income users, but also from the
lower end of the market as the cost
of smartphones and data dongles
decrease and further segmented
value propositions are developed.
MTN will continue to focus on
enhancing customer experience.
The Group has budgeted capital
expenditure in 2011 in South Africa
of R3,9 billion, mainly in IT and
value-added services as well as
investment in the core network and
physical infrastructure.
While managing convergence and
service integration, MTN South
Africa will also have to adapt
to changes in the regulatory
environment, including further
reductions in mobile termination
rates, the introduction of carrier
pre-select and the requirements
of the new Consumer Protection
Act. Carrier pre-select provides
customers with the choice, on a
call-by-call basis, of which operator
should carry calls.
Given these considerations,
MTN estimates that the total
addressable mobile market in South
Africa will increase to 58,5 million
SIMs by the end of 2012 and
62,9 million by 2015. For 2011,
MTN South Africa expects to achieve
net additions of two million.
MTN Group Limited Integrated Business Report for the year ended 31 December 201052
Launched
August 2001
Market share
52%
Mobile penetration
49%
Population
153,5 million
Forecast market size in 2015
117 million
MTN shareholding
76%
Operational and financial performance review continuedfor the year ended 31 December 2010
Profit analysisDecember
2010Rm
December2009
Rm%
change
Local currency
change %
Revenue analysis
Airtime and subscription 28 194 27 534 2 19
Interconnect 2 864 4 045 (29) (18)
Data 538 363 48 78
SMS 1 009 959 5 21
Connection fee 148 116 27 50
Mobile telephone and accessories 126 81 56,2 83,2
Other 613 229 167,8 57,6
Total revenue 33 492 33 326 0,5 16,0
Direct network operating costs 3 455 3 240 6,6 22,3
Costs of handsets and other accessories 763 785 (2,9) 12,8
Interconnect and roaming costs 1 868 2 793 (33,1) (22,3)
Employee benefit costs 1 004 1 034 (3,0) 10,2
Selling, distribution and marketing costs 3 445 3 250 6,0 21,3
Other expenses 1 878 2 477 (24,2) (15,2)
Total operating expenditure 12 412 13 579 (8,6) 4,6
EBITDA 21 080 19 746 6,8 23,9
EBITDA margin (%) 62,9 59,3 3,7 4,0
Capex 4 700 10 222 (54,0) (47,9)
Capex percentage of revenue 14 31 (17) (17)
MTN Nigeria
“MTN Nigeria’s success story is incomplete without a mention of the 122 trade partners who contributed significantly to the distribution of the company’s products”
53MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Subscribers (’000)/ARPU ($)
0
8 000
16 000
24 000
32 000
40 000
2010200920082007
Outgoing MOU 52 55 53 48
��MTN subscribers (’000)� ARPU (USD)*Restated to exclude free minutes
17 16 1211
23 077
16 511
38 669
30 827
Net additions (’000)
0
2 000
4 000
6 000
8 000
2010200920082007
��H2 ��H1
2 0541 755
6 5664 512
2 475
4 230
7 8423 612
4 261 4 230
7 7503 489
Operational and financial
performance
MTN Nigeria performed well in
2010, increasing its market share
by two percentage points to 52%
despite increased competition,
particularly in the fourth quarter.
The strong showing was as a result
of superior network coverage and
quality, attractive and innovative
segmented promotions to
customers and effective churn
management. Improved customer
service and product accessibility
through enhanced distribution
channels and customer call centres
also contributed to a 25% increase
in subscribers to 38,7 million.
The second half of 2010 began to
show signs of economic recovery
in Nigeria. GDP grew by nearly 8%,
comparing favourably with the
average growth rate for Africa of 4,5%.
However, the Nigerian economy
continued to feel the effects of
the global recession and the 2009
domestic banking crisis, while
politically there was uncertainty after
the May 2010 death of President
Umaru Yar’Adua after a long illness
and ahead of his replacement by
Acting President Goodluck Jonathan.
Job losses in the local banking sector
affected disposable income and
hence mobile affordability, mainly
among middle-class consumers. The
naira remained relatively stable in
2010, closing the year at NGN151 to
the US dollar compared to a closing
rate of NGN149 in 2009.
Mobile market penetration rose
seven percentage points to 49%,
with MTN Nigeria taking more than
60% of the market’s net additions.
The mobile industry continued to
dominate Nigerian telephony, with
an 89% share of the overall market.
MTN Nigeria’s naira revenue grew
16% mainly as a result of increased
airtime and subscription revenue
(up 19%). This was partially offset by
lower interconnect revenue (down
18%) resulting from the introduction
of lower termination rates by the
industry regulator. Due to MTN’s high
proportion of on-network traffic, the
net impact of these changes was
relatively muted with interconnect
costs declining marginally more
than interconnect revenue. Data
(including SMS) revenue continued
on a strong trajectory, growing 17%
for the year, albeit off a low base.
In naira, average revenue per user
(ARPU) per month declined 10%
from 2009, in line with penetration
into lower-usage segments of the
market. In US dollars, ARPU was 11%
lower at USD11.
MTN Nigeria’s EBITDA margin
increased 3,7 percentage points
to 62,9%. This was mainly due
to better economies of scale, an
improvement in interconnect
margin from higher on-net traffic
and a once-off elimination of an
impairment charge in relation to
the outsourcing of spare parts in
particular. The average exchange
rate of the naira to the rand fell
MTN Group Limited Integrated Business Report for the year ended 31 December 201054
16% in the year, leading to lower
rand-reported revenue and EBITDA
growth. In rand terms, revenue grew
0,5% to R33,4 billion and EBITDA
expanded 6,8% to R21,1 billion.
Effective and efficient network
and IT investments and upgrades
The considerable investment in the
MTN Nigeria network over the past
few years has enabled the company
to increase its market share while
maintaining good levels of network
quality and capacity. Between 2007
and 2010, more than R29 billion
in capital investment was made
in Nigeria.
In 2010, MTN Nigeria brought on
line 1 504 2G and 480 3G base
transceiver stations (BTS), increasing
the total count to 9 110. In addition,
4 800 BTS sites were upgraded to
improve capacity. At R4,7 billion,
capital expenditure dropped to 14%
of revenue from 30% (R10,2 billion)
the prior year. MTN Nigeria’s capital
expenditure was lower than
budgeted because of delays arising
from the manufacturing and delivery
of necessary equipment. However,
spending required to complete 2010
projects has been included in the
company’s 2011 budget.
MTN Nigeria continued expanding
its transmission capabilities, rolling
out fibre across the country and
completing a 696km backbone
fibre ring between Yola and Bauchi
through Gombe. In an effort
to enhance data capabilities, it
launched a national fibre expansion
project, linking 71 high-capacity
BTS sites on fibre. The roll out of
WiMax also gained momentum,
with 89 WiMax base stations set up
in five states.
Mobile operators in Nigeria
continued to face the challenge of
having their infrastructure damaged
during road construction activity
across the country. Securing rights
of way, as well as environmental
approvals for new infrastructure,
also impacted operators’ ability to
increase their fixed networks.
In July, the Main One submarine
fibre optic cable system linking West
Africa to Europe was commissioned.
MTN Nigeria’s access to this 7 000km
long cable will help it deliver greater
broadband capacity at reduced cost
to customers.
Ensuring the right products and
value-added services
MTN Nigeria’s customer segmentation
model, which offers different
customer groups the most
appropriate value propositions, played
a key role in the company’s ability to
effectively manage 38 million users. In
the second half, it launched its “Richer
Life” segmented bundle packages as
well as numerous innovative products.
These included MTN E-presence – a
first-of-its-kind offering in sub-Saharan
Africa which enables people in
different locations to communicate
through a virtual meeting room.
Operational and financial performance review continuedfor the year ended 31 December 2010
Capex ZAR (million)
0
2 200
4 400
6 600
8 800
11 000
2010200920082007
Capex as % of revenue 23,6 30,5 30,7 14,0
��H2 ��H1
4 7005 703
4 519
1 810
2 979
2 532
2 1683 942
5 668
10 222
4 789
9 610
BTS rollout
0
460
920
1 380
1 840
2 300
2010200920082007
��H2 ��H1*Including 3G
*1 984
726
494
146
652
802
758639
1 332
1 220
785
1 560
MTN Nigeria continued
55MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Brand perception improved in the
year, thanks to numerous initiatives
related to the Group’s sponsorship
of the 2010 FIFA World Cup™.
MTN Nigeria launched MTN Play
(a WAP portal delivering
entertainment content – including
sports content during the 2010
FIFA World Cup™), and also
introduced a football service
offering customers a comprehensive
range of football-related content,
delivered by SMS and MTN Play.
MTN HyNet, a prepaid broadband
internet service based on WiMax
technology, was implemented in
seven major Nigerian cities in the year.
MTN introduced various segmented
data bundles, facilitating 48% growth
in data revenue and the sale in the
year of 153 222 dongles (nearly
double 2009’s figure) and 41 740
3G handsets. This increased take-up
illustrates the strong momentum for
data offerings in Nigeria.
Efficient distribution and a good
customer experience
MTN Nigeria’s 2010 success story
is incomplete without a mention
of the 122 trade partners who
contributed significantly to the
distribution of the company’s
products. This indirect but highly
efficient distribution channel
accounted for over 99% of the
company’s sales in the year.
MTN also opened additional
customer call centres in 2010,
offering quality service through its
wide distribution network.
In the run up to the World Cup,
MTN launched “the biggest ball
tour” in Nigeria. The 35-foot ball,
produced in Lagos, was endorsed
by the Guinness Book of Records
as the biggest ever made. It toured
four major cities amid fanfare and
excitement, taking the message of
Africa United: One Team, One Spirit,
One Supporters Club for Africa. It
was also an opportunity to kick-start
the SIM-card registration process
across Nigeria and drive sales of
MTN products and services.
In line with a commitment to
deliver a single MTN-branded
customer experience and engrain
the customer centricity ethos in all
employees, MTN Nigeria ran the
second edition of the “back to the
shop floor” initiative in the year. A
total of 1 942 employees took part in
the exercise and their feedback has
been used to refine the MTN brand
promise in the walk-in assistance
centres. Motivated by feedback from
employees, MTN Nigeria introduced
extended opening hours at many of
these centres.
In recognition of the strength of the
MTN brand, MTN Nigeria won the
Outdoor Advertising Association of
Nigeria’s award for the best media
brand as well as the Advertisers’
Association of Nigeria’s award for the
best television commercial for MTN
Fastlink.
Sustaining our success
A highlight of the year was
the conclusion in June of a
USD2,2 billion financing deal
allowing MTN Nigeria to further
expand its network. In the largest
naira-denominated syndication ever,
a consortium of 15 Nigerian banks
extended a facility of NGN250 billion
to MTN Nigeria, while two
foreign banks extended a further
USD450 million.
MTN Nigeria’s people remain critical
to the success of the company. To
foster the retention of key talent, in
2010 MTN Nigeria developed and
implemented an integrated talent
management strategy, involving
talent review sessions and the
deployment of succession plans for
all divisions. It also developed and
MTN Group Limited Integrated Business Report for the year ended 31 December 201056
Operational and financial performance review continuedfor the year ended 31 December 2010
launched the Group-aligned MTN
Nigeria employee value proposition
to reinforce the company’s position
as the employer of choice.
The provision of quality training
remains vital for the development
and retention of employees. The
company also contributes to
knowledge share within the Group.
In 2010, it provided 34 employees
as technical and expert support
to several other operating units
through short-term assignments,
training and skills transfer.
In recognition of its work in the
community, the MTN Nigeria
Foundation (which spent
NGN1,6 billion on community
projects in the year) won the
“changing lives award” at the
AfricaCom Awards in November
2010 for its rural telephony project.
This offers micro-finance services
to rural women, enabling them
to purchase hardware (including
phones, antennas, umbrellas, solar
chargers and SIM packs) to operate
call centres. This is in line with the
MTN Nigeria Foundation’s objective
of facilitating the economic
empowerment of Nigerians. It
also aims to provide access to
educational opportunities and
alleviate health challenges in
the country.
MTN continued to sponsor
a number of community
development projects, including the
Lagos Street Soccer Championship,
a grassroots football initiative
aimed at developing young talent.
It also engaged with customers
in the youth market through
various sponsorships including
the MTN Project Fame West Africa
televised musical talent show.
On the environmental front,
MTN Nigeria started using alternative
power solutions to reduce the diesel
consumption (as well as operational
costs) of BTS sites.
Engaging with the industry
regulator
MTN Nigeria actively engaged the
industry regulator, the NCC, on
numerous initiatives in the year,
including new mobile termination
rates, SIM-card registration and
mobile number portability (the
commencement date of which
is yet to be announced by the
NCC). It secured approval for
fixed numbering plans in Ilorin,
Kaduna and Warri, as well as 3.5GHz
spectrum allocation in 13 states
and re-planning of 3.5GHz to
Time Division Duplex (TDD) from
Frequency Division Duplex (FDD) in
all states in the federation.
The company worked with the
regulator to collect debts owed
by a number of other operators
for interconnection services. This
resulted in the receipt of several
debts and MTN continues to engage
with the regulator to recover
amounts still outstanding.
In the year, MTN consolidated
its relationship with the various
regulatory agencies and consumer
advocacy bodies and continued
efforts to build a stable relationship
with the National Environmental
Standards and Regulations
Enforcement Agency (NESREA).
Looking ahead
MTN will celebrate its tenth
anniversary, a decade of bridging
the digital divide, in Africa’s
most populous country in 2011.
In a market where penetration
is still relatively low and where
voice remains the key revenue
driver, competition is expected
to intensify, placing pressure on
revenue. MTN Nigeria remains
MTN Nigeria continued
57MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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confident it will maintain its
competitive edge by continued
investment and upgrades to its
network quality and capacity. The
innovation of products and value-
added services, deep and broad
distribution as well as improved
customer care also remain key.
Although data use is still relatively
low, investment in 3G networks
and data products and services
remains a priority and is expected
to continue to increase as
smartphones and other 3G devices
become more affordable and
accessible. In 2011, MTN Nigeria
will accelerate the expansion of
its WiMax offering and increase
the penetration of MTN fixed data
services to corporate clients, small
and medium enterprises and
individuals by providing solutions
quicker and at a lower cost.
MTN Nigeria will continue to manage
and maintain its cost base efficiently.
However, lower interconnect rates
and lower retail prices will place
pressure on revenue. This, together
with potentially more investment
in value-added services, means that
MTN Nigeria expects an erosion of its
EBITDA margin from 2010’s levels.
The company has authorised capital
expenditure of R7,78 billion for 2011 –
the largest single-market investment
in the Group for the year. However,
this figure includes a roll over from
2010, when capex was lower than
budgeted. The majority of this
spending will be on increasing the
quality and capacity of 2G networks
as usage is expected to increase
following retail prices reductions
implemented in early 2011.
Customer service is expected
to receive a boost after the
recent launch of a new customer
relationship management tool.
The company will continue to
work to embed the employee
value proposition, thereby
increasing engagement, improving
productivity and business results
and attracting and retaining talent.
The Nigerian economy is expected
to benefit from higher oil prices
in 2011, however increased
government spending ahead of the
April elections and the measures
taken to resolve the banking crisis
are seen as stoking inflation. In an
effort to tame price rises, interest
rates are forecast to continue to rise.
By 2015, MTN estimates the
mobile market in Nigeria will have
grown to 117 million users from
2010’s 74,6 million. MTN Nigeria
anticipates adding at least 4,2 million
subscribers in 2011. This expectation
takes into account the impact of
SIM card registration as well as fierce
competition in Nigeria in the year
ahead.
MTN Group Limited Integrated Business Report for the year ended 31 December 201058
Launched
November 1996
Market share
53%
Mobile penetration
67%
Population
24,5 million
Forecast market size in 2015
20 million
MTN shareholding
98%
Operational and financial performance review continuedfor the year ended 31 December 2010
Profit analysis
December 2010
Rm
December 2009
Rm%
change
Local currency
change %
Revenue analysis
Airtime and subscription 4 089 4 077 0 15
Interconnect 1 023 1 145 (11) 3
Data 109 58 89 118
SMS 288 293 (2) 11
Connection fee 59 38 56 79
Mobile telephone and accessories 62 45 36,3 55,9
Other 20 12 76,0 66,8
Total revenue 5 651 5 667 (0,3) 14
Direct network operating costs 624 519 20,2 32,7
Costs of handsets and other accessories 266 194 37,1 54,4
Interconnect and roaming costs 689 646 6,7 21,5
Employee benefit costs 334 256 30,4 48,9
Selling, distribution and marketing costs 647 592 9,4 24,6
Other expenses 588 894 (34,2) (28,3)
Total operating expenditure 3 147 3 101 1,5 15
EBITDA 2 503 2 560 (0,7%) 13
EBITDA margin (%) 44,3 45,3 (0,2) (0,3)
Capex 3 130 2 616 20 (7)
Capex as a percentage of revenue 55 46 9 (9)
MTN Ghana
“The company’s performance was encouraging considering the extent of aggressive competition within the Ghanaian market”
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59MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Operational and financial
performance
MTN Ghana performed satisfactorily
in 2010 despite a marginal decline
in market share to 53% from 55% in
2009. The company’s performance
was encouraging considering the
extent of aggressive competition
within the Ghanaian market
and the impact of mandatory
customer SIM registration which
led to reduced gross connections
in the second half. It recorded
a 9% increase in subscribers to
8,7 million at December 2010,
driven largely by the introduction of
new price plans and the revision of
MTN Zone dynamic tariffing to allow
subscribers to view tariffs charged
in monetary value rather than as
percentage discounts.
Ghana moved into the ranks of
middle-income countries in 2010
following the statistical re-basing
of the country’s national accounts
to better reflect growth in areas
such as telephony and banking. This
resulted in a sharp upward revision
in economic growth. In December,
Ghana started producing oil from
its Jubilee field, adding crude to the
economy’s main resource exports of
cocoa and gold. Initial production of
120 000 barrels per day is expected
to rise to 250 000 bpd by 2013.
After a slowdown in inflation in the
previous year, the central bank cut
interest rates in the first half of 2010,
before keeping them on hold for the
rest of the year. Mobile telephony
continued to grow, outpacing fixed-
line growth, and increasing mobile
penetration in the year to 67%.
MTN Ghana’s cedi revenue grew 14%,
ahead of subscriber growth, mainly
because of the increase achieved in
airtime and subscription revenue.
Although data revenue (including
SMS) grew strongly at 13%, this was
off a low base and contributed 7% to
revenue. Reported ARPU decreased
USD1 a month to USD7 while cedi
ARPU remained stable.
MTN Ghana’s EBITDA margin edged
down slightly to 44,3% from 44,5%
in the prior period. This was mainly
because of the increase in direct
network operating costs, specifically
rent and utilities and maintenance
costs associated with a price hike
Subscribers (’000)/ARPU ($)
0
2 000
4 000
6 000
8 000
10 000
2010200920082007
Outgoing MOU 104 119 105 114
�� MTN subscribers (’000)� ARPU (USD)
1214
6 428
4 016
8 721
87
8 001
Net additions (’000)
-625
0
625
1 250
1 875
2 500
2010200920082007
��H2 ��H1
981
722807
2 4121 431
6241 431
720
(2)
782
791
1 573
MTN Group Limited Integrated Business Report for the year ended 31 December 201060
in May 2010, as well as a bigger
network. Staff costs also contributed
to the decrease in margin as a result
of improved retention initiatives.
Again, in light of aggressive
competition through headline tariff
reductions, this was an encouraging
performance.
The average cedi/rand exchange
rate fell 18% in the year. Because
of the strong rand, the results
translated into no revenue growth in
rand terms at R5,6 billion and a 3,8%
decrease in EBITDA to R2,5 billion.
Effective and efficient network
and IT investments and
upgrades
In the face of stiffer competition,
MTN Ghana was the only major
operation in the Group to increase
capital expenditure in the year,
raising it to more than 55% of
revenue (R3,1 billion) from 46%
(R2,6 billion) the year before. The
company maintained high network
quality and capacity despite a
meaningful increase in traffic by
rolling out 940 BTS, bringing the
total to 4 033, including a further
77 3G BTS.
Like MTN Nigeria, MTN Ghana
benefited from the commissioning
in July of the Main One open access
submarine fibre optic cable system
linking West Africa to Europe.
Access to this broadband capacity
has resulted in accelerated data
use in the region. MTN Ghana also
obtained approval in the year for
a landing station in Ghana for the
WACS submarine cable, which is
expected to add to the regional data
drive early in 2012.
Ensuring the right products and
value-added services
MTN Ghana maintained its
reputation for innovation, with the
launch of various new products
in the year, including changes to
MTN Zone dynamic tariffing. As
well as offering customers reduced
rates when traffic volumes are
low, the renewed offering (which
shows discounts in cedi amounts
rather than percentage terms) also
allows MTN to offer its customers
discounted prices while optimising
its network capacity.
Operational and financial performance review continuedfor the year ended 31 December 2010
Capex ZAR (million)
0
700
1 400
2 100
2 800
3 500
2010200920082007
Capex as % of revenue 32,8 30,7 45,6 54,8
��H2 ��H1
1 688
1 175
1 411
977
262
1 549 1 404
840
938
3 092
2 586
1 239
1 854
BTS rollout
0
200
400
600
800
1 000
2010200920082007
��H2 ��H1
703
289
440390
237
483
221
328
940
729718 704
MTN Ghana continued
61MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Customer perception about
network quality improved
significantly, but MTN Ghana
lagged some competitors in terms
of price perception. As a result,
MTN introduced new tariff plans,
including Talk-a-lot, So Cool and
So Easy, and benefited from loyalty
programmes. MTN MobileMoney
continued to grow, with 1,8 million
people using the service by year
end, making Ghana the largest
Mobile Money base in the Group.
Following the launch of 3G services
in Ghana in the past two years,
MTN Ghana introduced bundled
data offerings and reduced data
prices, leading to the sharp increase
in data usage in the year. Some
44 000 data dongles and 166 000
3G subscribers were registered on
the MTN Ghana network in 2010.
MTN Ghana developed a separate
value proposition to serve the data
needs of its business customers via
MTN Ghana Business Solutions, that
started operating in the first quarter
of 2010. It is focused on managed
data network services (MDNS) for the
corporate business market with three
main products: leased lines, dedicated
internet and VPN over mobile. Though
demand for these services was
very high in the year, performance
was constrained by the absence of
dedicated internet bandwidth and
so-called “last mile” equipment.
MTN Ghana expects the completion
of the WACS landing stations in
2011 to significantly enhance
MTN Ghana Business Solutions’
value propositions through the
improved availability of capacity. In
particular, MTN plans to tap into the
significant demand for bandwidth
and data capacity from offshore oil
companies.
Efficient distribution and a good
customer experience
MTN Ghana’s regional distribution
model again proved successful,
reducing the distance between the
company and its customers. In the
year, MTN Ghana had 14 wholesale
dealers, 28 MTN branches and
22 “connect” stores. Electronic
airtime vouchers continued to gain
momentum, reducing the company’s
reliance on paper recharge vouchers.
MTN Ghana also invested in the
trade channels in the year, with the
deployment of 68 new distributor
branches dedicated exclusively to
driving MTN business as well as
the deployment of 800 active sales
canvassers dedicated to sales of
pay-as-you-go SIM cards and ultra-
low-cost handsets to limit churn and
improve data penetration.
Sustaining our success
A highlight in the year was the
agreement with American Tower
Corporation to establish a joint
venture in Ghana (TowerCo
Ghana), in which MTN will hold
49%. The transaction involves the
sale of up to 1 876 of MTN Ghana’s
existing sites to TowerCo Ghana for
approximately USD428,3 million,
of which American Tower will pay
MTN Group Limited Integrated Business Report for the year ended 31 December 201062
Operational and financial performance review continuedfor the year ended 31 December 2010
MTN Ghana continued
up to USD218,5 million for its 51%
stake. This initiative provides an
opportunity for an additional source
of revenue as well as a chance to
reduce operational and capital
costs associated with maintaining
passive infrastructure. It also
offers opportunities to expand
coverage into previously under-
serviced areas, which will further
help to bridge the digital divide.
Infrastructure sharing will also
reduce MTN Ghana’s environmental
footprint.
Efforts to develop local skills –
especially in network building and
maintenance – continued in 2010.
MTN Ghana spent USD2,5 million
on various training and staff
development initiatives from which
more than 55% of the employee
base benefited. The company
also increased the number of
staff seconded to other operating
companies in 2010, enabling skills
transfer, knowledge share and career
development.
In 2010, MTN Ghana recorded
improvements in a cultural audit
of employees and won the Group’s
Y’ello Care Trophy for the voluntary
work carried out by staff in the
community. This included support to
a government effort on eradicating
malaria, various educational initiatives
and a blood-donation exercise.
The MTN Ghana Foundation is
driving other community support
programmes, including the
rehabilitation of some hospitals and
schools in deprived areas in Ghana.
MTN Ghana continues to explore
more environmentally friendly ways
of operating and has introduced
community phones that are fully
powered by solar panels. Another
45 sites that had previously relied on
diesel generation are now powered
by hybrid systems.
Engaging with the industry
regulator
Ghana continued to increase mobile
regulatory requirements in the
year. In July, subscriber registration
started and by year end, 70% of the
subscriber base had registered their
details. The process is scheduled to
be completed by the end of June
2011.
MTN Ghana continued to engage
proactively with the National
Communications Authority on
various issues, including mobile
number portability (which is due
to be introduced in 2011) and the
increase in SIM box activity. This
occurs when third party carriers
bypass interconnect fees by using
devices called SIM boxes or GSM
gateways (essentially two phones
on different networks rigged up so
that a call arriving on one is routed
out again on the other). To the
networks involved, each call appears
to start and end on its own network.
To customers, these services can
often be of poor quality.
During the year, Ghana implemented
new telecoms governance
technology to monitor inbound
international calls for revenue. The
authorities asked telecoms operators
63MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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to charge, from June, a new, higher
fixed rate for all inbound international
calls. This move, along with the
increased incidence of SIM boxing,
affected MTN Ghana’s international
incoming revenue.
Late in 2009, the Environmental
Protection Agency put a halt to
the building of mobile towers until
it had agreed an environment
framework with operators, holding
back network expansion in the
interim. After intense industry
engagement, this ban was lifted in
the middle of 2010.
Looking ahead
The outlook for the mobile market in
Ghana in 2011 remains challenging
in a 67% penetrated market with
five mobile operators and a sixth
set to launch in mid 2011. However,
MTN Ghana remains positive that it
will sustain its leadership position
despite increased competition and
increased regulatory requirements.
It will continue to focus on churn
management as data and other
value-added services – including
MobileMoney – become
increasingly important.
Sustaining the EBITDA margin is
unlikely in the short term given
the market pressures on revenue
and the establishment of TowerCo
Ghana. MTN Ghana will continue
efforts to maintain a tighter cost
base and focus on data and value-
added services initiatives.
To ensure that it continues to deliver
leading network quality and capacity,
MTN Ghana has authorised capital
expenditure of R1,2 billion for 2011,
mainly in 2G, cable and fibre.
The Ghanaian economy is
expected to expand strongly,
benefiting from its new oil exports,
but inflation could return to
double digits after sharp rises in
retail fuel prices. Apart from the
effect on consumers’ disposable
incomes, there will also be pressure
from increasing maintenance costs
(related to higher diesel prices),
while increased competition will
mean more downward pressure on
mobile tariffs.
Among regulatory challenges in
the year ahead are the completion
of subscriber registration and
preparations for the introduction
of mobile number portability. By
2015, MTN estimates the total
addressable mobile market in Ghana
will be 20,1 million. This compares
to a mobile market of 16,37 million
in 2010. MTN Ghana expects
to achieve at least 9,1 million
customers by the end of 2011.
MTN Group Limited Integrated Business Report for the year ended 31 December 201064
Launched
October 2006
Market share
44%
Mobile penetration
92%
Population
73,2 million
Forecast market size in 2015
82 million
MTN shareholding
49%
Operational and financial performance review continuedfor the year ended 31 December 2010
Profit analysis
December 2010
Rm
December 2009
Rm%
change
Local currency
change %
Revenue analysis
Airtime and subscription 4 895 4 051 21 42
Interconnect 2 306 2 167 6 25
Data 178 92 93 140
SMS 1 633 1 118 46 73
Connection fee 98 150 (35) (22)
Mobile telephones and accessories
Other 91 47 94,7 105,9
Total revenue 9 201 7 625 20,7 42,0
Direct network operating costs 3 108 2 789 11,4 31,5
Costs of handsets and other accessories 118 179 (34,2) (20,9)
Interconnect and roaming costs 1 134 937 21,1 42,9
Employee benefit costs 118 95 24,2 46,4
Selling, distribution and marketing costs 534 614 (13,0) 3,6
Other expenses 404 347 16,3 31,4
Total operating expenditure 5 416 4 961 9,2 28,7
EBITDA 3 786 2 664 42,1% 66,6
EBITDA margin (%) 41,1 34,9 6,2 6,1
Capex 1 661 3 326 (50,1) (46,1)
Capex as a percentage of revenue 18 44 (26) (28)
MTN Irancell (49%)
“Data revenue (including SMS revenue) expanded 45% to contribute almost a fifth to total revenue”
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65MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Operational and financial
performance
In its fourth full year of operations,
MTN Irancell reported a solid
performance, increasing its market
share to 44% from 40% in 2009 and
contributing to the expansion of
mobile penetration in the country
to 92%. Improvements in the
quality and coverage of its network
(particularly in greater Tehran),
attractive seasonal promotions
and the continued roll out of
electronic distribution channels
helped support gains in the health
of the MTN Irancell brand. This,
in turn, resulted in net additions
of 6,5 million, increasing total
subscribers by 28% to 29,7 million
by the end of the year.
The Iranian economy grew by an
estimated 2% in 2010, mainly driven
by relatively stable international oil
prices and increased petrochemical
product output both for export and
for domestic gasoline consumption
in light of sanctions on the
importation of gasoline. The Iranian
rial depreciated by 4% against the
dollar over the year. In June, the
United Nations tightened sanctions
on Iran.
Inflation slowed to its lowest level
in over 10 years in August, before
resuming its upward trend, ending
the year at 10%. In December,
the government started reducing
subsidies on essential items such
as food, fuel and electricity and
introduced direct subsidy payments
to households.
MTN Irancell’s rial revenue
increased 42%, significantly ahead
of subscriber growth. This was
largely driven by airtime and
subscription revenue, which grew
42%, and data (including SMS)
revenue which expanded 50% to
contribute almost a fifth to total
revenue. These gains were partly
offset by a decrease in connection
revenue as a result of the lower
prices charged by MTN Irancell on
prepaid connections. Although
growth in data revenue excluding
SMS was high, it remained
insignificant as a percentage of
total revenue, limited by regulatory
controls over content.
Reported average revenue per user
(ARPU) was stable at USD8 a month,
while ARPU in rials increased slightly
because of improved network
quality and increased data and SMS
usage.
Subscribers (’000)/ARPU ($)
0
7 000
14 000
21 000
28 000
35 000
2010200920082007
Outgoing MOU 69* 60* 58* 60
��MTN subscribers (’000)ARPU (USD)
*Restated to exclude free minutes
10
16 039
6 006
29 743
89 8
23 260
Net additions (’000)
0
2 400
4 800
7 200
9 600
12 000
2010200920082007
��H2 ��H1
5 587
1 829
10 033
4 446
4 0235 852
6 483
3 148
4 0732 776
3 707
7 221
MTN Group Limited Integrated Business Report for the year ended 31 December 201066
MTN Irancell’s EBITDA margin grew
6,2 percentage points to 41,1% in
2010. This was mainly due to better
cost efficiencies in maintenance
arising from renegotiated supplier
contracts as well as a reduction in
marketing expenses. A diversified
channel and distribution strategy
led to the reduction in prepaid
dealer commissions, which
together with transmission cost
savings also contributed to the
improvement.
The average rial exchange rate to
the rand weakened 17% in the
year, which translated into 21%
growth in revenue and 42% growth
in EBITDA in rand terms. MTN
Group consolidates only 49% of
MTN Irancell.
Effective, efficient network and
IT investments and upgrades
The roll out of infrastructure in
Iran since inception in 2006 has
been the fastest ever undertaken.
In 2010, the company’s main focus
was on increasing the coverage,
quality and capacity of the 2G
network. By year end, MTN Irancell
had increased coverage of the
population to 77% and geographic
coverage to 20%.
In 2010, the MTN Group spent
R1,7 billion on its share of
MTN Irancell’s capital expenditure,
which equated to some 18%
of revenue down from 43% the
prior year. The company added
1 284 base transceiver stations
(BTS), bringing its total to 6 859.
It also added 5 772km of road
coverage. MTN Irancell continued
to roll out its WiMax wireless
data transmission technology,
increasing the number of live sites
by 206 during the year to 535,
mainly in major cities.
While MTN Irancell recorded a
significant improvement in the
quality of its network in Tehran,
Tabriz, Ahvaz, Mashhad and Shiraz in
2010, securing site rentals in Esfahan
remained a challenge. MTN Irancell’s
priority is to further enhance
network quality, including securing
better quality service on leased
transmission links from the current
provider.
Operational and financial performance review continuedfor the year ended 31 December 2010
Capex (49%) ZAR (million)
0
700
1 400
2 100
2 800
3 500
2010200920082007
Capex as % of revenue 116,3 55,6 43,6 18,1
��H2 ��H1
8961 044
2 282
845
714
765
601
2 142
1 661
3 326
1 559
2 743
BTS rollout
0
460
920
1 380
1 840
2 300
2010200920082007
��H2 ��H1
1 284
1 250
793748 728
833
696
894
556
2 043
1 6421 529
MTN Irancell continued
67MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Ensuring the right products and
value-added services
To stimulate subscriber uptake,
MTN Irancell continued to offer
attractive products and also
introduced various new value
propositions in the year. These
included the popular Buy One
Get One Free SIM-card promotion
introduced prior to the current year.
Another successful campaign gave
customers who bought a new SIM
card a bundle of free MMS, a free
ring-back tone and some additional
content.
In January, MTN Irancell
formally launched its WiMax
services, providing wireless data
transmission. The initial take-
up was slower than expected,
but activations increased in the
second half, with 36 293 WiMax
subscribers registered by year end.
The company continues to work
on optimising the network and
improving its coverage, speed
and quality (particularly in Tehran
and Esfahan). However, securing
approval from Tehran landlords
for the installation of WiMax
equipment is proving a challenge.
EDGE was activated on nearly
90% of the cells in the network.
This, together with an increase in
SMS’s and the launch of WiMax,
resulted in an 800% increase in data
traffic in the year.
In the second quarter, MTN Irancell
introduced its Farsi short
messaging service (SMS). Due to
the technical structure of using
Farsi (resulting in the message
being sent in unicode) these
SMS have fewer characters
than Roman-character text
messages and come at a lower
price to customers. Initially, the
introduction led to a reduction in
MTN Irancell’s SMS revenue, which
now appears to have recovered
thanks to the increasing usage of
the Farsi option.
In October 2010, MTN Irancell
introduced its first mobile-banking-
related product. This enables
MTN Irancell subscribers to link
their SHETAB (the interbank card
switch) cards to their MSISDNs and
directly purchase logical PINs from
their handsets by dialling a USSD
code and having the cost deducted
from their bank accounts.
Other services introduced during
the year included: direct top-ups
through an internet portal, “magic
numbers” in the loyalty programme,
various enhancements to ring-back
tones and further improvements to
the content delivery platform.
Efficient distribution and a good
customer experience
MTN Irancell made strides in
honing its distribution model
in the year. At year end, logical
airtime sales represented 57% of
the total recharge count, after
the company promoted airtime
top-ups through points of sale
and bank cash machines (ATMs).
It added 9 000 ATMs, bringing the
MTN Group Limited Integrated Business Report for the year ended 31 December 201068
total to 16 500, and introduced
365 000 point of sale terminals.
The active dealer base grew to
9 786 from 8 000 dealers, as the
number of distributors increased to
19. The number of internet banking
websites on which MTN Irancell
products are sold increased by five
to nine.
By year end, all recharge vouchers
were locally produced (up from
90% the previous year) and the
Iranian production of SIM cards
increased to 40% of all SIM cards
used by MTN Irancell from just 5%
in 2009.
The company has two call centres,
in Tehran and Tabriz, and a third will
start operating in Shiraz in 2011.
During 2010, MTN Irancell handled
176 million calls from subscribers,
down 18% from the previous year.
The company installed a new
customer management system
in an effort to improve customer
satisfaction and continued to invest
in regular training of customer
management and call centre staff.
Sustaining our success
MTN Irancell remains committed
to the Iranian people through
employment creation and skills
and knowledge transfer. As an
employer of choice, MTN Irancell
offers a superior employee value
proposition that creates benefit not
only to staff and their families but
also to the community as it builds
good corporate citizens.
Employees at MTN Irancell have an
opportunity to gain both on-the-
job experience and international
training. Skills gained by our staff
are then brought back into the
country, driving development
and sustainability. Apart from
direct employment, MTN Irancell’s
outsourcing model has created
thousands of indirect jobs which
contribute significantly to the
Iranian economy.
MTN Irancell is committed to
working to minimise its impact
on the environment, employing
concepts such as site sharing and
recycling to limit its environmental
footprint. The company also
aims to create focus groups with
communities to help drive a
cleaner, healthier environment.
Engaging with the industry
regulator
MTN Irancell maintained its active
engagement with the authorities
in the year, complying with
requirements despite a lack of
formal industry regulations on
issues such as interconnection
or facilities leasing. The company
has applied for additional number
ranges and in the meantime
continues to “recycle” out-of-use
numbers to new subscribers.
Following the award of a third
mobile licence in 2010, the new
entrant is expected to start
operating in 2011. The new
competitor has exclusive rights for
a two-year period from commercial
launch date to deploy a 3G
network. MTN Irancell rolled out a
MTN Irancell continued
Operational and financial performance review continuedfor the year ended 31 December 2010
69MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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WiMax network last year to address
its customers’ data needs. The
regulator is holding discussions on
national roaming with operators,
and has put number portability
discussions on hold.
Looking ahead
The Iranian economy is expected
to benefit from higher oil prices in
2011 although the government’s
subsidy reform programme could
impact consumers’ disposable
income, with implications for
spending on mobile telephony.
Although subsidies on oil and
energy have already been
withdrawn, the government is
giving monthly cash allowances
to all registered citizens. This may
benefit mobile operators in the
short term, however the removal
of the subsidies could impact the
cost structure of MTN Irancell going
forward.
In 2011, MTN Irancell will continue
to work to improve the quality of its
network, and particularly its WiMax
value proposition. The MTN Group
has committed R1,3 billion for
its share of MTN Irancell’s capital
expenditure for 2011, most of
which will be dedicated to the 2G
and core network.
MTN Irancell intends increasing
its coverage of the population
further as well as expanding into
more remote parts of the country.
It plans to complete the roll out
of WiMax in Tehran and Esfahan
in 2011. Despite the anticipated
launch in the second half of a new
mobile operator, these initiatives
are expected to help MTN Irancell
achieve its business targets for
2011.
MTN Group Limited Integrated Business Report for the year ended 31 December 201070
Launched
June 2002
Market share
45%
Mobile penetration
50%
Population
21,8 million
Forecast market size in 2015
12,69 million
MTN shareholding
75%
Operational and financial performance review continuedfor the year ended 31 December 2010
Profit analysis December
2010Rm
December 2009
Rm%
change
Local currency
change %
Revenue analysis
Airtime and subscription 5 373 5 451 (1) 10
Interconnect 497 514 (3) 9
Data 297 135 121 152
SMS 447 398 12 28
Connection fee 27 64 (58) (53)
Mobile telephone and accessories 8 19 (57,9) 13,8
Other 165 406 (59,5) 46,3
Total revenue 6 814 6 987 (2,5) 10,4
Direct network operating costs 3 719 3 891 (4,4) 7,7
Costs of handsets and other accessories 69 70 (1,4) 9,7
Interconnect and roaming costs 442 424 4,4 17,5
Employee benefit costs 213 243 (12,2) (0,7)
Selling, distribution and marketing costs 263 342 (23,3) (13,5)
Other expenses (general and administration) 503 644 (21,9) (10,3)
Total operating expenditure 5 210 5 614 (7,2) 4,8
EBITDA 1 604 1 372 16,9 33,6
EBITDA margin (%) 23,5 19,6 3,9 4,1
Capex 410 748 (45,0%) (38,2)
Capex as a percentage of revenue 6 11 (5) (5)
MTN Syria
“Since its launch, MTN Syria’s customer relationship management has been a key differentiator, providing a competitive edge”
MTN Group Limited Integrated Business Report for the year ended 31 December 201071
Operational and financial
performance
Attractive segmented customer
value propositions, loyalty
initiatives and improved brand
perception helped MTN Syria
increase subscriber numbers by
15% to 4,9 million in 2010, while
maintaining its market share at 45%.
Despite the economy continuing
to feel the effects of the global
recession, harming consumers’
purchasing power, MTN Syria
recorded net additions of 649 000.
This helped support the increase in
mobile penetration in the country
of 21,8 million people to 50% of the
population from 46% in 2009.
The highlight of the year was
the signing in November
of a memorandum of
understanding with the Ministry
of Telecommunications for the
conversion of the build-operate-
transfer (BOT) arrangement to a
freehold mobile operators’ licence.
This change, which is expected
to be implemented in the first
half of 2011, will give MTN Syria
the confidence to invest more
aggressively in its operations and
product offering.
MTN Syria’s revenue in local
currency expanded 10,4% in the
year, mainly as a result of a 10%
increase in airtime revenue and 9%
growth in interconnection revenue.
Increased data product offerings
helped lift data revenue (including
SMS revenue) 41% for the year,
contributing 11% of total revenue.
With more subscribers in lower-
usage segments, MTN Syria’s
reported average revenue per user
(ARPU) decreased USD2 to USD16 a
month. In Syrian pounds, ARPU
declined 8%. MTN Syria’s EBITDA
margin increased 3,9 percentage
points to 23,5% at the end of the
period. This was largely because
of a decrease in rent and utility
costs resulting from a decline in
maintenance and site insurance
expenses. Transmission and
maintenance costs also decreased
following the adoption of lower
pricing from the regulator.
Commissions paid in the market
declined, leading to a material
reduction in distribution costs.
Because of the strong rand, MTN Syria
reported a 2,5% drop in revenue in
rand terms to R6,8 billion and a 14%
increase in EBITDA to R1,6 billion at
the end of December 2010.
Effective and efficient network
and IT investments and
upgrades
The delayed resolution of the
conversion of the BOT arrangement
to a standard mobile operator’s
licence affected the roll out of
network infrastructure in the year.
Nevertheless, MTN Syria added
415 base transceiver stations (BTS),
bringing the cumulative total at the
end of the period to 3 912. Capital
expenditure dropped to 6% of
revenue (or R410 million) from 10%
(or R748 million) the prior year.
Despite the reduced spending,
the performance of the network
improved because the operation
completed its frequency plans and
re-engineered radio transmission to
ensure increased network quality
and capacity. Now that the BOT
issue is resolved, MTN Syria intends
to increase the momentum of its
roll out in the year ahead.
Subscribers (’000)/ARPU ($)
0
1 000
2 000
3 000
4 000
5 000
2010200920082007
Outgoing MOU 130 124 120 108
��MTN subscribers (’000)��ARPU (USD)*Restated to exclude free minutes
20 19 1816
3 539
3 109
4 898
4 249
Net additions (’000)
0
200
400
600
800
1 000
2010200920082007
��H2 ��H1
266
517
355
430
164
872
649
11
699478
171
710
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MTN Group Limited Integrated Business Report for the year ended 31 December 201072
Ensuring the right products and
value-added services
While providing basic voice services
of appropriate quality remained
MTN Syria’s primary objective,
more effort was devoted in 2010
to support the introduction of
innovative new content and
solutions ahead of anticipated
changes in the regulatory
environment.
Among the numerous product
launches and promotions in the year
were various SMS and data bundles;
the MTN Gold campaign (during
which traffic received a boost from
gold prize giveaways); and the 2010
FIFA World Cup™ ticket competition
for subscribers. MTN also reduced
the price by a quarter of prepaid
SIM connections and extended the
validity and reduced the price of
most denominations of pay-as-you-
go vouchers.
In line with government
requirements, MTN Syria offered
limited 3G services to customers,
with internet access the main
application. The company continued
to work to position MTN Syria as a
major internet service provider, with
particular focus on solutions for the
corporate market.
The company reported significant
improvements in the key
performance indicators of the
MTN Syria customer contact centre
in the year.
Efficient distribution and a good
customer experience
Since its launch, MTN Syria’s
customer relationship
management has been a key
differentiator, providing an edge
over the competitor’s client
services. This is thanks to the
“one language” spoken with
MTN subscribers, the customer-
oriented approach and the focus
on service. The real challenge
– in terms of complexity of
treatment – has always been the
561 906 postpaid subscribers who
represent a third of the company’s
revenue. To ensure the retention
of these important customers,
MTN Syria continues to work
to improve their management,
including the proper handling
of complaints, requests and
bad debts. All these require
reliable systems and appropriate
processes and procedures.
To service customers across all
regions of the country, MTN Syria
owns 33 customer centres and has
another 18 which are franchised.
Together, these centres log over
700 000 visits by customers a month.
Sustaining our success
The expansion of MTN Syria’s
services means there is great
demand for skilled employees,
but the rapid growth in the
telecoms industry in the region is
exacerbating the shortfall in certain
skill sets. MTN Syria continued to
work to recruit competent Syrians
living abroad and is pleased to
report some success in the year in
this regard.
The company benefited from the
training provided by the regional
MTN Academy, encouraging
employees to share knowledge
gained during courses at the
academy in Dubai. In the year,
MTN Syria carried out various
activities focused on engaging with
Operational and financial performance review continuedfor the year ended 31 December 2010
Capex ZAR (million)
0
240
480
720
960
1 200
2010200920082007
Outgoing MOU 9,0 16,0 10,7 6,0
��H2 ��H1
309386
362
730
180
230171
247
748
1 039
418 410
BTS rollout
0
130
260
390
520
650
2010200920082007
��H2 ��H1
415
283
221
124
215
444
152
193
200
504
317
596
MTN Syria continued
73MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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employees and motivating them,
and retaining their skills. Among
the most popular was an internal
competition to attend games in
South Africa during the 2010 FIFA
World Cup™, sponsored by the
Group.
MTN Syria understands the
responsibility that comes with
being a large company in Syria. It
made good progress in its five-year
project with the UN Development
Programme on establishing the
MTN Cancer Research Centre and
also continued to contribute to
various sports events, including
the Discover Syria Rally, and a
number of health and education
programmes. Among these is the
MTN Smart School Programme,
where a computer laboratory
with internet access is prepared,
equipped and launched by MTN in
collaboration with provincial
education authorities. The first
lab was launched in Homs on
1 December.
In recognition of its contribution
to the community, MTN Syria
won the private sector social
responsibility award presented
by the Junior Chamber
International in recognition of its
serious engagement and social
involvement.
As part of its commitment to
introduce the latest high-tech
products and environment-friendly
technology for its mobile network,
MTN Syria signed an agreement
with Ericsson in the year for the
provision of Ericsson’s latest multi-
standard base stations. MTN Syria
will now deploy the RBS 6102 base
station family, which consumes less
power, within its radio network.
Engaging with the regulator
The regulatory environment in
Syria continued to evolve, requiring
proactive and wide-ranging
engagement by the company
with the authorities. In June, the
president signed a new telecoms
law and approved the formation
of an organisation to oversee
the industry. This is a first step
towards the establishment of an
independent regulator for the
telecommunications industry.
After extensive negotiations with
the government regarding the
conversion of the BOT contract
to a licence, the memorandum of
understanding was signed, covering
the scope of the new licence, which
will likely have a 20-year lifespan,
with an upfront fee payable in
Syrian pounds and includes a 25%
revenue share with the government
plus a maximum fee of 1,5% of
revenue for universal service
funding.
Ahead of the change in the
regulatory landscape from a heavily
regulated one to one which is more
open and competitive, MTN Syria
did substantial preparatory work
in the year on various issues, such
as interconnect. A third mobile
operator is expected to start
operating in Syria in 2011.
Looking forward
MTN considers that the potential
for strong growth in data is good,
and continues to prepare for this
new era.
Once it has secured a 20-year
operating licence, MTN Syria will
invest more in modernising the
current infrastructure in terms of
towers and the speed and quality
of transmission. It will continue
to transform the network from a
legacy-based one to one based on
internet protocol.
MTN Syria’s EBITDA margin is
expected to increase in the
medium to long term following the
conversion of the BOT arrangement
which currently has a 50% revenue
share.
MTN Group has authorised capital
expenditure of more than R1 billion
for the Syrian operation in 2011 –
more than double that committed
in 2010. Much of this will be spent
on IT systems and value-added
services and the core network. This
will allow for greater penetration in
rural areas and the addition of an
expected 600 000 new subscribers
in the year.
With mobile penetration of just
50%, MTN forecasts that the Syrian
mobile market will continue to
grow. By 2015, it expects a market
of 12,7 million subscribers from
10,9 million in 2010.
MTN Group Limited Integrated Business Report for the year ended 31 December 201074
Five-year review
Financial informationDecember
2010December
2009December
2008December
2007December
2006
Income statement – extracts (Rm)Revenue 114 684 111 947 102 526 73 145 51 595EBITDA 47 537 46 063 43 166 31 845 22 413Profit from operations 32 137 31 588 30 407 22 872 16 094Net finance costs (4 094) (5 810) (1 917) (3 173) (1 427)Income tax expense (11 268) (8 612) (11 355) (7 791) (2 591)Profit after tax attributable to– Equity holders of the Company 14 300 14 650 15 315 10 608 10 610– Non-controlling interest 2 527 2 511 1 820 1 308 1 489Basic headline earnings 14 011 14 869 15 603 10 886 10 628
Statement of financial position – extracts (Rm)Property, plant and equipment 63 361 67 541 64 193 39 463 30 647Goodwill 20 797 24 756 31 914 25 744 27 017Intangible assets 9 469 11 308 13 872 13 053 13 088Investments and loans 4 693 5 291 4 683 2 493 2 925Deferred taxation 1 407 1 317 657 1 332 2 605Bank balances, deposits and cash 36 232 24 741 28 738 17 607 10 091Other current assets 18 002 21 283 26 049 15 894 10 544Assets of a disposal group classified as held for sale 825 — — — —Total assets 154 786 156 237 170 106 115 586 96 917Ordinary shareholders’ interest 71 855 70 011 76 386 47 315 38 696Non-controlling interest 2 219 2 855 4 156 4 187 4 033Interest-bearing liabilities 35 328 36 917 41 590 33 657 32 979Non-interest-bearing liabilities 38 344 40 788 42 985 27 751 18 431Deferred taxation 7 040 5 666 4 989 2 676 2 778Total liabilities 80 712 83 371 89 564 64 084 54 188Total equity and liabilities 154 786 156 237 170 106 115 586 96 917
Cash flow statement – extracts (Rm)Cash generated from operations 50 536 49 632 44 836 34 334 22 934Net cash inflows from operating activities 34 728 36 282 34 236 25 850 17 622Net cash outflows from investing activities (15 701) (33 192) (27 177) (17 152) (35 711)Net cash outflows from financing activities (2 055) (926) 292 (2 135) 18 993Cash and cash equivalents 35 907 22 646 25 596 15 546 9 008Dividends paid (6 313) (3 381) (2 536) (1 675) (1 083)Capital expenditure (15 343) (27 720) (26 896) (15 348) (9 796)
75MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Financial information (continued)December
2010December
2009December
2008December
2007December
2006
Performance per ordinary shareBasic headline earnings (cents) 760,6 803,2 836,5 584,8 606,5 Adjusted headline earnings (cents) 747,0 754,3 904,4 681,9 584,7 Attributable earnings (cents) 776,2 791,4 821,0 569,9 605,4 Dividends (cents) 343,0 181,0 136,0 90,0 65,0 Net asset value – book value (rands)(1) 38,1 38,2 41,0 25,4 20,8
Returns and profitability ratiosReturn on assets (%)(2) 20,7 19,4 21,3 21,5 22,7 Return on average shareholders’ funds (%)(3) 19,8 20,3 25,2 25,3 36,4 EBITDA margin (%) 41,5 41,1 42,1 43,5 43,4 Enterprise value/EBITDA multiple (times)(4) 5,4 5,3 5,1 8,1 8,3 Effective taxation rate (%) 40,1 33,4 39,9 39,5 17,6
Solvency and liquidity ratiosGearing (%)(5) (1,2) 16,7 16,0 31,2 53,6 Interest cover (times)(6) 5,2 2,6 3,5 4,6 4,9 Dividends cover (times)(7) 2,2 4,2 4,6 4,3 6,3 Net debt to EBITDA(8) — 0,3 0,3 0,5 1,0 Operating cash flow/revenue (%) 44,1 44,3 43,7 46,9 44,5
Share performanceNumber of ordinary shares in issue (million)– at year end 1 885 1 841 1 868 1 865 1 860 – weighted average during the year 1 884 1 851 1 865 1 862 1 752 Closing price (cents per share) 13 442 11 790 10 850 12 806 8 530 Market capitalisation (Rm) 253 318 216 999 202 385 238 806 158 684
Definitions(1) Ordinary shareholders’ interest dividend by the number of ordinary shares in issue at year end(2) Profit from operations as a percentage of the average of the opening and closing balances of total assets(3) Headline earnings as a percentage of the average of the opening and closing balances of ordinary shareholders’ interest(4) Market capitalisation less net debt (interest-bearing liabilities less bank balances, deposits and cash) divided by EBITDA(5) Net debt as a percentage of total equity(6) Profit from operations divided by finance costs(7) Headline earnings divided by total dividend(8) Interest-bearing liabilities less cash divided by EBITDA
MTN Group Limited Integrated Business Report for the year ended 31 December 201076
Five-year review continued
Operational informationDecember
2010December
2009December
2008December
2007December
2006
South AfricaMobile penetration (%) 105 103 97 86 74Market share (%) 36 32 36 36 36Subscribers (million) 19 16 17 15 12ARPU (ZAR) 154 126 164 149 159EBITDA margin (%) 34 31 33 35 34Capex/sales (%) 11 18 15 10 10
NigeriaMobile penetration (%) 49 42 36 28 19Market share (%) 52 50 44 43 46Subscribers (million) 39 31 23 17 12ARPU (USD) 11 12 16 17 18EBITDA margin (%) 63 59 58 57 57Capex/sales (%) 14 31 30 24 25
GhanaMobile penetration (%) 67 61 50 33 22Market share (%) 53 55 55 52 52Subscribers (million) 9 8 6 4 3ARPU (USD) 7 8 12 15 17EBITDA margin (%) 44 45 46 51 42Capex/sales (%) 54 46 31 31 28
IranMobile penetration (%) 92 80 61 37 20Market share (%) 44 40 37 23 1Subscribers (million) 30 23 16 6 *ARPU (USD) 8 8 9 10 9EBITDA margin (%) 41 35 30 (13) (75)Capex/sales (%) 18 44 56 116 1 003
SyriaMobile penetration (%) 50 46 38 26 26Market share (%) 45 45 46 46 46Subscribers (million) 5 4 4 2 2ARPU (USD) 16 18 19 17 17EBITDA margin (%) 24 20 28 35 32Capex/sales (%) 6 11 16 17 10
* Amount less than R1 million
77MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Glossary
2G Second generation
3G Third generation
ADR American depository receipt
AI Africa Investor
ARPU* Average revenue per user per month
ATM Automatic teller machine
BA Bankers’ acceptance rate
BEE Black economic empowerment
BOT Build operate and transfer
Bps Basis points
BRM Business risk management
BTS Base transceiver station
Capex Capital expenditure
CBC African business awards
CDMA Code-Division Multiple Access
CFA Communaute Financiére Africaine franc
CGU Cash-generating unit
CSR Corporate social responsibility
CST Communication service tax
dti South African Department of Trade and Industry
E Emalengeni
EASSy Eastern Africa Submarine Cable System
EBITDA Earnings before interest, tax, depreciation and amortisation
ECA Electronic Communications Act of South Africa
ECICSA Export Credit Insurance Corporation of South Africa
EMF Electromagnetic field
EPS Earnings per share
eTOM enhanced telecom operations map
EUR Euro
EURIBOR Euro Interbank Offered Rate
EVD Electronic voucher distribution
EXCO Executive committee
FEC Forward exchange contract
FIFA Federation Internationale de Football Association
FIPPA Foreign Investment Promotion and Protection Act
FMCG Fast moving consumable goods
GDP Gross domestic product
GHC Ghana cedi
GPRS General packet radio service
GRI Global Reporting Initiative
GSM Global system for mobile communications
HEPS Headline earnings per share
HIV/Aids Human immunodeficiency virus/acquired immune deficiency syndrome
HR Human resources
HSDPA High speed downlink packet access
Terms and acronyms
* ARPU is measured on a monthly basis. The revenue (including interconnect fees but excluding connection fees and visitor roaming revenue) is divided by the weighted average subscriber base over the reported period.
MTN Group Limited Integrated Business Report for the year ended 31 December 201078
Glossary continued
IAS International Accounting Standards
ICASA Independent Communications Authority of South Africa
ICT Information and communication technologies
ifc International Finance Corporation
IFRIC International Financial Reporting Interpretation Committee
IFRS International Financial Reporting Standards
IP Internet protocol
IRR Iranian rials
IS Information Systems
ISO International Standards Organisation
ISP Internet service provider
ITIL Information technology infrastructure library
IVR Interactive voice response
JSE JSE Limited – the South African stock exchange
JIBOR Johannesburg Interbank Offered Rate
King II King committee report on corporate governance 2002
King III King committee report on corporate governance 2009
LCs Letters of credit
Loerie South African advertising industry’s accolades
LIBOR London Interbank Offered Rate
LTE Long-term evolution
NRHR & CG Nomination, remuneration, human resources and corporate governance committee
MCharge MTN’s virtual recharge mechanism
MENA Middle East and North Africa region includes operations in Iran, Afghanistan, Syria, Yemen, Cyprus and Sudan
MMS Multimedia messaging service
MNP Mobile number portability
MOU Minutes of use
MPLS Multiprotocol label switching
NCC Nigerian Communications Commission
NGN Next-generation networking
NGN Nigerian naira
NIBOR Norwegian InterBank Offered Rate
NokNok MTN’s instant social messaging chat service, launched in 2007
NTC National Telecommunications Corporation
off-net Telephone calls originating and terminating on different networks
OIETAI Organisation for Investment Economic and Technical Assistance of Iran
on-net Telephone calls originating and terminating on the same network
PAT Profit after tax
PAYG Pay as you go
PIC Public investment corporation
PIN Personalised identification number
postpaid/contract
Services for which the subscriber has a contract and pays monthly
PTO Public telecommunications operator
prepaid Services for which the subscriber pays in advance
79MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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PSTN Public switched telephone network
PWC PricewaterhouseCoopers Inc.
RICA Communication-Related information Act
SAICA South African Institute of Chartered Accountants
SARS South African Revenue Services
SARs Share Appreciation Rights Scheme
SDG Sudanese pounds
SEA South and East Africa includes operations in South Africa, Botswana, Swaziland, Uganda, Rwanda and Zambia
SHE Safety, health and environment
SIM Subscriber identity module
SME Small and medium enterprise
SMS Short message service
SP Service provider
SPE Special purpose entities
STC Secondary taxation on companies
SPV Special purpose vehicle
STRATE Share Transactions Totally Electronic
subscriber A customer who has participated in a revenue generating activity within the last 90 days
SYP Syrian pound
SRI Social responsible investment index
TCI Telecommunications company of Iran
TDM Time division multiplexing
UCT University of Cape Town
Unisa University of South Africa
USD US dollar
UGX Uganda shilling
VGC VGC Communications Limited
VoIP Voice over internet protocol
VP Vice president
WECA West and Central Africa includes operations in Nigeria, Cameroon, Côte d’Ivoire, Ghana, Benin, Liberia, Guinea Republic,Guinea-Bissau and Congo-Brazzaville
WiMax Worldwide interoperability for microwave access/broadband wireless technology
ZAR South African rand
ZCA Zambian Communications Authority
ZMK Zambian kwacha
80
Statutory certificates and reports
Directors’ report
Annual financial statements
Through the development of our consumer segments, we are able to address and develop innovative products and services such as MTN Zone and PayAsYouGo, both of which are tailored to suit customer needs.
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81
MTN Group Limited Integrated Business Report for the year ended 31 December 201082
The directors are responsible for the preparation, integrity and fair presentation of the financial statements of MTN Group Limited and its subsidiaries in accordance with International Financial Reporting Standards (IFRS) and the Companies Act, No 61 of 1973 as amended, (the Companies Act). The Group annual financial statements and annual financial statements of MTN Group Limited presented on pages 106 to 231 have been prepared in accordance with the requirements of IFRS and the Companies Act and include amounts based on judgements and estimates made by management.
The directors consider that having applied IFRS in preparing the financial statements, they have used the most appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and that all IFRS that they consider to be applicable have been followed. The directors are satisfied that the information contained in the financial statements fairly presents the results of operations for the year and the financial position of the Group and the Company at year end, in accordance with IFRS.
The directors have responsibility for ensuring that accounting records are kept. The accounting records disclose, with reasonable accuracy, the financial position and results of the Group and the Company and enable the directors to ensure that the financial statements comply with relevant legislation.
MTN Group operates in an established controlled environment, which is documented and regularly reviewed. This incorporates risk management and internal control procedures, which are designed to provide reasonable, but not absolute, assurance that assets are safeguarded and the risks facing the business are controlled. Any new acquisitions which do not apply the same standards and procedures will be integrated into the Group and, during such integration, uniformity of standards will be achieved. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.
The going-concern basis has been adopted in preparing the financial statements. The directors have no reason to believe that the Group or any company within the Group will not be a going concern in the year ahead, based on forecasts and available cash resources. These financial statements support the viability of the Group and the Company.
The Group’s external auditors, PricewaterhouseCoopers Incorporated and SizweNtsaluba VSP, jointly audited the financial statements and their unqualified audit report is presented on page 83.
The annual financial statements and Group annual financial statements which appear on pages 106 to 231 were approved for issue by the board of directors on 8 March 2011 and are signed on its behalf by:
MC Ramaphosa PF NhlekoChairman Group president and chief executive officer
Fairland8 March 2011
Statement of directors’ responsibility for the year ended 31 December 2010
83MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Report of the independent auditors for the year ended 31 December 2010
We have audited the Group annual financial statements and annual financial statements of MTN Group Limited, which comprise the consolidated and separate statements of financial position as at 31 December 2010, and the consolidated and separate statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the directors’ report, as set out on pages 106 to 231.
Directors’ responsibility for the financial statementsThe Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, the financial statements present fairly, in all material respects, the consolidated and separate financial position of MTN Group Limited as at 31 December 2010, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of South Africa.
PricewaterhouseCoopers Inc. SizweNtsaluba VSP.Director: S Sooklal Director: A MashifaneRegistered Auditor Registered Auditor
Sunninghill Woodmead8 March 2011 8 March 2011
MTN Group Limited Integrated Business Report for the year ended 31 December 201084
Certificate by the company secretary for the year ended 31 December 2010
In terms of section 268(d) of the Companies Act, No 61 of 1973 as amended, (the Companies Act), I certify that, to the best of my knowledge and belief, the Company has lodged with the Registrar of Companies for the year ended 31 December 2010, all such returns as are required of a public company in terms of the Companies Act and that such returns are true, correct and up to date.
SB MtshaliCompany secretary
Fairland8 March 2011
85MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Report of the audit committee
Report in terms of section 270A (1) (f) of the Companies Act, No 61 of 1973, as amendedGroup audit committeesThe report provides an overview of the audit committee and its activities as well as appropriate information on how the committee has discharged its responsibilities. The committee is a statutory committee and performs duties delegated by the board. The committee has a majority of independent non-executive directors who are financially literate as recommended by King III.
The committee’s chairman attended the annual general meeting during the year under review.
The committee meets not less than four times per year.
The head of Group business risk management/internal audit (BRM) and external auditors have unrestricted access to the committee and its chairman. Internal audit’s performance is reviewed annually by the committee.
Audit committees exist in each Group operation and significant risk and audit matters relating to operations are regularly reported to the Group audit committee. The non-executive chairpersons of subsidiary audit committees do meet formally with the Group audit committee annually or more often as required. Audit workshops are held annually to consider and agree on audit plans for all operations for the year ahead and to review the effectiveness of the overall internal audit function.
The main meetings of the committee are preceded by an in-camera session of non-executive members only and are concluded by separate in-camera sessions with the management, internal and external audit as key invitees. Executive directors attend committee meetings as permanent invitees.
The external auditors’ performance and independence is regularly monitored by the committee and formally assessed annually. The audit partners are rotated every five years. Auditors are appointed by the board on the recommendation of the committee and ratified by shareholders. Both internal and external auditors attend all committee meetings.
The committee has conducted its work over the year and discharged its responsibilities in accordance with these terms of reference. The committee is pleased to present below its report in terms of section 270A (1) (f ) of the Companies Act, No 61 of 1973, as amended, for the financial year ended 31 December 2010. The committee was formally reappointed by the board during the year.
Execution of functions of the audit committeeThe committee has executed its duties and responsibilities in accordance with its terms of reference as they relate to the MTN Group’s accounting, internal auditing, internal control and financial reporting practices. The committee performed the following activities during the year under review:
Considered the effectiveness of the internal audit function and monitored adherence to the annual internal audit plan; received and reviewed reports from both internal and external auditors concerning the effectiveness of the internal control environment, systems and processes; reviewed the reports of both internal and external auditors detailing their concerns arising out of their audits and requested and considered appropriate responses
from management; reviewed the processes in place for the reporting of concerns and complaints relating to accounting practices, internal audit, contents of the Company’s financial
statements, internal controls and any related matters. The committee can confirm that there were no such complaints of substance during the year under review;
MTN Group Limited Integrated Business Report for the year ended 31 December 201086
Report of the audit committee continued
reviewed the report prepared by internal audit regarding the risk management processes in the Company and the extent to which such have been embedded within each operating division;
reviewed and approved the Company’s policy for non-audit services that can be provided by the external auditors. This policy sets out those services that may not be provided by the external auditors and the required authorisation process for those services that the external auditors may provide;
considered the independence and objectivity of the external auditors and ensured that the scope of additional services provided did not impair their independence; approved the non-audit-related services performed by the external auditors in the year in accordance with the policy established and approved by the board; approved the external auditors’ fees for 2010 and the budgeted fees for the 2011 financial year.
In addition the chairman of the committee: Met separately over the course of the year with management, and with both internal and external auditors; and attended the Group risk management and compliance committee meetings held during the year under review.
During the year, the internal audit function reviewed the Company’s system of internal controls and risk management. Considering information and explanations given by management, and discussions with both internal and external auditors on the results of their audits, assessed by the audit committee, nothing has come to the attention of the audit committee that caused it to believe that the Company’s system of internal controls and risk management is not effective and that the internal financial controls do not form a sound basis for the preparation of reliable financial statements.
Further to this, the Company launched King III compliance project during the year to identify gaps and address new requirements as a consequence of King III, including a review of the mandate, implementation of a combined assurance approach, and implementation of a more comprehensive IT governance framework.
After assessing the requirements set out in section 270A(5)(a-d) of the Companies Act, the committee is satisfied with the independence and objectivity of the external auditors, and recommends the reappointment of the joint external auditors at the next annual general meeting.
The Group’s external auditors are PricewaterhouseCoopers (Inc ) and SizweNtsaluba VSP. Fees paid to the auditors for the year under review are disclosed in note 5 to the annual financial statements on page 141.
The committee has evaluated the financial statements of MTN Group for the year ended 31 December 2010 and, based on the information provided to it, considers that the Group complies with the Companies Act, as amended, International Financial Reporting Standards (IFRS) and the Listings Requirements of the JSE.
In compliance with paragraph 3.84(h) of the JSE Listings Requirements, the committee reviewed the performance, appropriateness and expertise of the Group finance director, NI Patel. The committee is satisfied that he has the appropriate expertise and experience to fulfil the role of Group finance director and has performed appropriately during the year under review.
AF van BiljonAudit committee chairman8 March 2011
87MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Directors’ report for the year ended 31 December 2010
The directors have pleasure in presenting their report which forms part of the audited annual financial statements of the Company and the Group for the year ended 31 December 2010.
Nature of businessMTN Group Limited (MTN Group or the Company), incorporated on 23 November 1994, carries on the business of investing in the communications industry through its subsidiary companies, joint ventures and associated companies. MTN Group is listed on the JSE Limited.
International Financial Reporting Standards (IFRS)MTN Group’s financial statements were prepared in accordance with International Financial Reporting Standards.
Financial resultsFull details of the financial results of MTN Group are set out on pages 106 to 231 of these annual financial statements and accompanying notes for the year ended 31 December 2010.
Year under reviewThe detailed reviews and the activities of MTN Group are contained in the chairman and Group president and CEO’s statements and the operational and financial review as set out on pages 16 to 73.
Subsidiary companiesDetails of entities in which MTN Group has a direct or indirect interest are set out in Annexure 1 of the financial statements on pages 228.
All Group subsidiaries have a year end consistent with that of the MTN Group, with the exception of Irancell Telecommunication Services Company (Private Joint Stock) (MTN Irancell), which has a year end of 19 March, due to statutory requirements in Iran.
Distribution to shareholdersFinal dividendA final dividend of 349 cents per share (December 2009: 192 cents per share) amounting to R6 577 million (December 2009: R3 534 million) in respect of the financial year ended 31 December 2010 was declared on Wednesday, 8 March 2011, payable to shareholders registered on Friday, 25 March 2011.
Interim dividendA maiden interim dividend of 151 cents per share amounting to R2 780 million in respect of the half-year period ended 30 June 2010 was declared on Wednesday, 18 August 2010, paid to shareholders registered on Friday, 10 September 2010.
The payments of future dividends will depend on the board’s ongoing assessment of MTN Group’s earnings, financial position, cash needs, future earnings prospects and other factors.
Shareholders on the South African register who dematerialised their ordinary shares receive payment of their dividends electronically, as provided for by STRATE. For those shareholders who have not yet dematerialised their shareholding in the Company in certificated form, the Company operates an electronic funds transmission service, whereby dividends may be electronically transferred to shareholders’ bank accounts. These shareholders are encouraged to mandate this method of payment for all future dividends, by approaching our share registrar, Computershare Investor Services (Proprietary) Limited, whose contact details are set out on page 254 of the notice of the annual general meeting.
MTN Group Limited Integrated Business Report for the year ended 31 December 201088
Directors’ report continued for the year ended 31 December 2010
Share capitalAuthorised share capitalThere was no change in the authorised share capital of the Company during the year under review. The authorised ordinary share capital of MTN Group is 2,5 billion shares of 0,01 cent each. The movements in the issued ordinary share capital during the period under review were reflected as follows:
During the year under review there was a net increase in the issued share capital due to the acquisition of shares by MTN Zakhele Limited in respect of the MTN BEE transaction and the subsequent issuing of shares under the Employee Share Ownership Plan (ESOP).
Options exercised and allottedShares Strike price
250 740 R9,3184 290 R13,5352 806 R27,00159 426 R40,50
Shares issued to MTN Zakhele Limited in terms of the MTN BEE transactionNumber of shares Issue price
42 040 364 R107,46
Shares issued in respect of the Employee Share Ownership Plan (ESOP)
Issued 1 405 200Delisted (19 200)
1 386 000
Accordingly, at 31 December 2010, the issued share capital of the Company was R188 453 (December 2009: R184 053) comprising 1 884 510 117 (December 2009: 1 840 536 491) ordinary shares of 0,01 cent each. As at the date of this report, there were no treasury shares held by the Company.
Control of unissued share capitalThe unissued ordinary shares are the subject of a general authority granted to the directors in terms of section 221 of the Companies Act, 1973 as amended (Act No 61 of 1973) (the Companies Act). As this general authority remains valid only until the next annual general meeting, which is to be held on 22 June 2011, members will be asked at that meeting to consider an ordinary resolution placing the said unissued ordinary shares, up to a maximum of 10% of the Company’s issued share capital, under the control of the directors until the next annual general meeting.
Further details of the authorised and issued shares as well as the share premium for the year ended 31 December 2010 are set out in note 18 to the Group annual financial statements.
89MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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MTN broad-based BEE transactionRationale for and principles of the MTN broad-based BEE transactionBEE is integral to the ethos of MTN and MTN believes that broad-based BEE participation is important to its future success.
MTN has been guided primarily by the following principles in structuring the MTN BEE transaction: the vesting (through MTN Zakhele) of full voting and economic rights to the BEE participants from inception; achieving a sustainable and robust BEE transaction at a realistic economic cost (inclusive of any dilution) to shareholder; broadening MTN’s South African BEE ownership by structuring the MTN BEE transaction through an offer to the black public; and acting as far as possible within the letter and spirit of the broad-based black economic empowerment codes of practice and their requirements for the
empowerment of South African businesses.
During the period under review, the Company launched an empowerment vehicle where members of the black public were invited to subscribe for ordinary shares in MTN Zakhele Limited (MTN Zakhele). In terms of the prospectus issued by MTN Zakhele on 30 August 2010, all black staff and black directors of MTN and its major subsidiaries and their associates were entitled to participate in the MTN Zakhele offer on precisely the same terms as members of the black public.
A total of 80 900 000 MTN Zakhele shares were offered to the members of the black public at R20 per share. Although there was an oversubscription of shares, MTN Zakhele Limited shares were allotted and issued to all successful applicants. No preference in any allocation was given to any employee or director of MTN or its subsidiaries, or their associates.
MTN Zakhele shares cannot be traded during the minimum investment period (ie the first three years). Restricted trading is allowed during the fourth to sixth years, where MTN Zakhele shares could be sold to eligible MTN Zakhele ordinary shareholders. All sales during the fourth to sixth years are subject to approval and verification by MTN or a designated committee. There are no special restrictions on the sale or encumbrance of MTN Zakhele shares after the empowerment period.
Details of participation in MTN Zakhele scheme by black MTN directors, directors of major subsidiaries and company secretary are set out on page 104.
Employee Share Ownership Plan (ESOP)MTN established the ESOP for the benefit of eligible employees (employees who are South African citizens or permanent residents and at job level 1 and 2 that do not participate in any other existing share scheme within MTN Group). The ESOP was effective from 1 December 2010. Eligible MTN ESOP employees were not required to contribute any equity to participate and will be entitled to full voting and dividend rights. Eligible MTN ESOP employees were granted an allocation of 400 MTN shares each not exceeding R50 000 per eligible MTN ESOP employee. With limited exceptions (eg death), participants in the ESOP are required to hold the MTN shares awarded to them under the ESOP for a period of at least five years.
The implementation of the ESOP was not conditional upon the implementation of the MTN BEE transaction and eligible MTN ESOP employees were issued the ESOP shares directly and not through MTN Zakhele.
New employee share incentive plansDuring the period under review, MTN Group established two employee share incentive schemes, namely, MTN Group Limited Performance Share Plan 2010 and MTN Group Limited Share Appreciation Rights Scheme 2010. The shareholders of the Company approved these two schemes and their salient features at the annual general meeting held on 15 July 2010. No allocations had been made in terms of these two schemes as at 31 December 2010.
MTN Group Limited Integrated Business Report for the year ended 31 December 201090
Directors’ report continued for the year ended 31 December 2010
Acquisition of the Company’s own shares At the last annual general meeting held on 15 July 2010, shareholders gave the Company or any of its subsidiaries a general approval in terms of sections 85 and 89 of the Companies Act, by way of special resolution, for the acquisition of its own shares. As this general approval remains valid only until the next annual general meeting, which is to be held on 22 June 2011, members will be asked at that meeting to consider a special resolution to renew this general approval until the next annual general meeting, subject to a maximum extension of 15 months. During the year under review there were no acquisition of the Company’s own shares.
Shareholders’ interestDisclosure in accordance with section 140A (8) (a) of the Companies Act and paragraph 8.63 of the JSE Listings Requirements.
The following information was extracted from the Company’s share register as at 31 December 2010:
MTN Group Limited: Shareholder analysis tablesRegister date: 31 December 2010Issued share capital: 1 884 510 117
Shareholder spread Number of
shareholders % Numberof shares %
1 – 1 000 shares 57 254 80,39 17 399 492 0,92 1 001 – 10 000 shares 11 399 16,00 32 308 580 1,72 10 001 – 100 000 shares 1 642 2,31 55 036 993 2,92 100 001 – 1 000 000 shares 743 1,04 231 965 788 12,31 1 000 001 shares and over 185 0,26 1 547 799 264 82,13
71 223 100,00 1 884 510 117 100,00
31 December 2010 31 December 2009Nominees holding shares in excess of 5% of the issued ordinary share capital of the Company
Number of shares
% of issued share capital
Number of shares
% of issued share capital
Nedcor Bank Nominees Limited 592 362 611 31,43 707 311 323 38,43 Standard Bank Nominees (Tvl) (Proprietary) Limited 591 663 890 31,40 619 607 675 33,66 First National Nominees (Proprietary) Limited 277 262 580 14,71 312 383 573 16,97 Absa Nominees (Proprietary) Limited 165 390 793 8,78 122 630 962 6,66
Spread of ordinary shareholdersNumber of
shareholdings
Public 71 202 1 279 613 654 67,90 1 184 393 703 64,35 Non-public 21 604 896 433 32,10 656 142 788 35,65 – Directors of MTN Group Limited and major subsidiaries 9 2 880 023 0,15 9 006 155 0,49 – Empowerment* 4 85 509 785 4,54 10 412 747 0,57– Lombard Odier Darier Hentsch & Cie (M1 Limited) 7 184 271 933 9,78 190 084 630 10,33– GEPF** 1 332 234 692 17,63 446 639 256 24,26
Total issued share capital 71 223 1 884 510 117 100,00 1 840 536 491 100,00 * National Empowerment Fund StratEquity Empowerment Investment and MTN Zahkele.** Government Employee Pension Fund managed through various asset, investment and fund managers.
91MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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According to information received by the directors, the following shareholders held shares in excess of 5% of the issued ordinary share capital of the Company:
31 December 2010 31 December 2009
Beneficial shareholders holding 5% or more Number
of shares % of issued
share capital Number of shares
% of issued share capital
Government Employees Pension Fund 332 234 692 17,63 446 639 256 24,27Lombard Odier Darier Hentsch & Cie (M1 Limited) 184 271 933 9,78 190 084 630 10,33Old Mutual Investment Group (SA) (Proprietary) Limited — — 116 613 767 6,34
Directorate and Company secretaryThe composition and profiles of the board of directors of MTN Group are set out on pages 20 to 23.Details of directors’ remuneration and shareholding are set out on pages 94 and 100.Details of board changes during the reporting period are set out on page 19 of the chairman’s statement.The Company group secretary is SB Mtshali, whose business and postal addresses are set out below:
Business address216 – 14th Avenue, FairlandGauteng, 2195
Postal addressPrivate Bag X9955Cresta2118
DirectorsIn accordance with the articles of association of the Company, one-third of the board is required to retire by rotation at each annual general meeting. Retiring directors are those who have been in office the longest since their last re-election and directors who have been appointed between annual general meetings.
The directors retiring by rotation in terms of the articles of association at the forthcoming annual general meeting and who are available for re-election are J van Rooyen, MJN Njeke AT Mikati, JHN Strydom and KP Kalyan. The profiles of the directors retiring by rotation and seeking re-election are set out on pages 235 to 237 of the notice of the annual general meeting.
During the year under review, NP Mageza, A Harper and MLD Marole were appointed to the existing board to fill vacancies and were subsequently re-elected at the annual general meeting held on 15 July 2010. The other directors who were due for rotation, MC Ramaphosa, AF van Biljon, DDB Band were re-elected.
MTN Group Limited Integrated Business Report for the year ended 31 December 201092
Directors’ report continued for the year ended 31 December 2010
Interests of directors and officersDuring the year under review, no contracts were entered into in which directors and officers of the Company had an interest which significantly affected the business of the Group. Black MTN directors had an indirect interest in MTN Group Limited securities through subscription for MTN Zakhele Limited, details of which are set out on page 104.
The directors had no interest in any third party or company responsible for managing any of the business activities of the Group.
The emoluments and perquisites of executive directors are determined by the Group nominations, remuneration, human resources and corporate governance committee (NRHR & CG committee) and approved by the board. No long-term service contracts exist between executive directors and the Company, with the exception of the contract of service between the Group president and CEO and the Company, of which the first contract had commenced on 1 July 2002 and terminated on 30 June 2007. The contract was subsequently renewed at the AGM held on 13 June 2007 until 30 June 2010.
The Group president and CEO did not renew his long-term contract of employment which ended on 30 June 2010. However, he agreed to continue in his current role until 31 March 2011. The Company has entered into a restraint of trade agreement with PF Nhleko which was ratified at the AGM on 15 July 2010.In terms of this agreement, the Company will pay PF Nhleko R33 million on 1 April 2011. The restraint is for a three-year period.
Reward and remuneration philosophyThe principles of MTN Group’s remuneration policy reflect the Group’s objectives of a sound governance process and long-term value creation for the Group’s shareholders. It is also designed to support key business strategies and create a strong, performance-orientated environment as well as attract, motivate and retain employees.
Performance management The performance of MTN employees is enhanced through an effective performance management system at all levels of remuneration, whether through the fixed guaranteed package, or the various short-term and long-term incentive schemes.
As a multinational company, all applicable employees and executives within Group companies and operating units participate in the Group’s Integrated Performance Framework (IPF) by means of performance agreements, thereby ensuring that the entire Group is fully aligned in achieving the strategic objectives and goals as determined by the board. This process consists of two elements, namely: the individual performance section, which rewards individuals for achieving targets through the salary increase process; and the team performance section which rewards the team for achieving the strategically determined value drivers, coupled with the Company’s performance targets, and is rewarded through the performance bonus incentive scheme.
The MTN Group board of directors has delegated responsibility for remuneration policy to the NRHR & CG committee. The role of this committee, among others, is to establish the overall principles that determine the remuneration of the executive directors and senior management. The full details of the NRHR & CG committee’s role, constitution and attendance are outlined in the corporate governance report.
In setting remuneration policy, the NRHR & CG committee recognises the need to be competitive in an international market. The committee’s practice is to set remuneration levels which ensure that executive directors and senior management are fairly and responsibly rewarded for their contribution to the Group’s operating and financial performance. In addition, in order to promote a common interest with shareholders, performance-linked, share-based incentives are considered to be an important element of the executive incentive policy.
93MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Executive directors and senior managementThe remuneration of the executive directors and senior management currently consists of three main components to balance long- and short-term objectives: base salary; annual bonus plan with performance targets; and long-term incentives in the form of share-based incentive schemes. The last two are designed to encourage and reward superior performance, employee retention and to align the interests of the executive directors and senior management employees as closely as possible with the interests of shareholders. In addition to these main components, the executive directors and senior management also receive pensions, medical insurance, death/disability insurance and other benefits.
Performance bonuses for executive directors are linked to the operational and financial value drivers pertaining to business performance against budget for individual operations and the Group as a whole. These value drivers are determined by the board every year in respect of the next financial year. Each executive director’s performance bonus is conditional upon achievement of their specific value drivers and key performance indicators which are structured to retain a balance between the performance of entities for which they are directly responsible, and that of the Group. In order to align incentive awards with the performance to which they relate, bonuses reflected are for amounts accrued in respect of each year and not the amounts paid in that year. The bonuses are determined by the NRHR & CG committee and are approved by the board.
The base salary of executive directors is subject to annual review and is set with reference to external market benchmarks, taking individual performance into consideration. Executive directors do not receive payment of director’s fees or committee fees in respect of meetings attended.
MTN Group recognises the benefits that the involvement of executive directors as non-executive director’s of other companies (under certain conditions) convey to the individuals and the Company. However, each executive director is normally permitted to accept only one outside appointment, and the earned director’s fees are ceded to MTN Group.
Remuneration of non-executive directorsMTN Group’s non-executive directors receive an annual retainer and meeting attendance fees. They do not participate in any type of share incentive scheme or receive pension-related benefits.
The board is proposing fee increases of 9,1% for local non-executive directors and a 4,1% increase for international non-executive directors for the retainer and attendance of board meetings. A 7,1% increase is proposed for the retainer and attendance of committee meetings. It is important to ensure that the remuneration of non-executive directors remains competitive in order to enable the Company to retain and attract persons of the required calibre who can make meaningful contributions. Given its global footprint and growth rate and having regard to the appropriate capabilities, skills and experience required, the Group president and CEO, in consultation with the Group executive: human resources and Group financial director conducted a review of the remuneration paid to non-executive directors, based on data provided by independent remuneration specialists and benchmarked against comparable entities. The NRHR & CG committee debated and considered the revised remuneration proposal at length and after reaching consensus, recommended the revised remuneration proposal to the board, which sanctioned the proposal for recommendation to shareholders at the annual general meeting to be held on 22 June 2011. The proposed new fee structure is outlined in the notice of the sixteenth annual general meeting and will be applicable with effect from 1 January 2011.
MTN Group Limited Integrated Business Report for the year ended 31 December 201094
Directors’ report continued for the year ended 31 December 2010
The fees received by executive and non-executive directors during 2010 are reflected in the following table:
Directors’ emoluments and related payments For the year ended 31 December 2010
Dateappointed
Salaries R000
Retirementbenefits
R000
Otherbenefits*
R000Bonuses
R000Total R000
Executive directorsPF Nhleko 01/06/01 8 955 1 133 76 20 206 30 370NI Patel 27/11/09 3 530 449 328 2 706 7 013RS Dabengwa 01/10/01 4 457 562 564 2 480 8 063
16 942 2 144 968 25 392 45 446
In terms of the share appreciation rights scheme and share rights plan, the executive directors made the following pre-tax gains:R000
PF Nhleko 21 441NI Patel 2 890RS Dabengwa 3 859
28 190
* Includes medical aid and unemployment insurance fund.
Dateappointed
Retainer#
R000Attendance#
R000
Special board
R000
Specialprojects
R000
Ad hoc workR000
TotalR000
Non-executive directors MC Ramaphosa 01/10/01 904 738 363 116 — 2 121DDB Band 01/10/01 264 481 189 150 — 1 084K Kalyan 13/06/06 276 487 195 116 — 1 074A T Mikati *† 17/07/06 736 808 351 – — 1 895MJN Njeke 13/06/06 268 296 195 17 — 776JHN Strydom 11/03/04 287 455 195 116 — 1 053AF van Biljon 01/11/02 287 412 195 133 — 1 027J van Rooyen 17/07/06 315 473 195 132 — 1 115MLD Marole 01/01/10 237 367 195 116 — 915NP Mageza 01/01/10 248 404 195 116 — 963A Harper * 01/01/10 736 808 351 29 — 1 924
4 558 5 729 2 619 1 041 — 13 947
*Fees that have been paid in euro have been converted to rand.† Fees are paid to M1 Limited.#Retainer and attendance fees include fees for board and committees.
95MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Director’s emoluments and related payments For the year ended 31 December 2009
Dateappointed
Salaries R000
Retirementbenefits
R000
Otherbenefits
R000Bonuses
R000Total R000
Executive directors***PF Nhleko 01/06/01 6 727 749 218 8 000 15 694RD Nisbet (resigned during 2009) 01/10/01 3 615 333 310 — 4 258NI Patel 27/11/09 311 40 6 2 000 2 357RS Dabengwa 01/10/01 4 113 527 558 3 093 8 291
14 766 1 649 1 092 13 093 30 600
The increase in PF Nhleko’s bonus is due to the 2010 amount being calculated using a 200% hyperbonus multiple, whereas 2009 bonus amount was based on 100% multiple as he did not qualify for the higher multiple.In terms of the share appreciation rights scheme and share rights plan, an executive director made the following pre-tax gains:
R000
RD Nisbet 1 357
1 357
2008 fees paid in 2009 Date
appointed Retainer## Attendance## Retainer# Attendance##Special
boardSpecial
projectsAd hoc
work Total
Non-executive directors*MC Ramaphosa 01/10/01 633 329 177 728 460 — — 2 327 DDB Band 01/10/01 196 223 152 19 238 136 369 1 333 K Kalyan**# 13/06/06 556 420 — — 372 103 — 1 451 AT Mikati **† 17/07/06 799 320 — — 634 277 — 2 030 MJN Njeke 13/06/06 212 234 157 28 238 33 — 902 JHN Strydom 11/03/04 212 296 157 25 238 162 — 1 090 AF van Biljon 01/11/02 210 326 152 74 238 136 24 1 160 J van Rooyen 17/07/06 232 318 165 62 238 136 24 1 175 3 050 2 466 960 936 2 656 983 417 11 468 * At the annual general meeting held on June 2009, the shareholders approved an increase in fees for non-executive directors with retrospective effect from 1 January 2008. The payment of the increased fees to non-executive
directors was made at the end of the second quarter of 2009 and was in respect of scheduled board and committee meetings as well as numerous special board and committee meetings and for ad hoc work and special projects during the course of the year.
** Fees that have been paid in euro have been converted to rand.*** Share options/SARS details are not reflected in the remuneration schedule but are disclosed on page 142 of the 2010 annual financial statements. † Fees are paid to M1 Limited. # Fees for quarters 1 and 2 were paid in euros while for quarters 3 and 4 were paid in rand.## Retainer and attendance fees include fees for board and committees.
MTN Group Limited Integrated Business Report for the year ended 31 December 201096
Directors’ report continued for the year ended 31 December 2010
The MTN Group share options, share appreciation rights and share rights schemesThe Company operates share options, share appreciation rights and share rights schemes (jointly referred to as the schemes) and eligible employees including executive directors, are able to participate in accordance with the schemes’ rules. The schemes are designed to retain and recognise the contributions of executive directors and eligible staff and to provide additional incentives to contribute to the Company’s continued growth.
In terms of the Company’s share option scheme, the total number of shares which may be allocated for the purposes of the scheme shall not exceed 5% of the total issued ordinary share capital of the Company, being 94 225 505 shares.
The following information is provided in accordance with the schemes:
The vesting periods under the schemes are as follows: 20%, 20%, 30% and 30% on the anniversary of the second, third, fourth and fifth years respectively, after the grant date. The strike price is determined as the closing market price for MTN Group Limited shares on the day prior to the date of allocation.
If the options or appreciation rights remain unexercised after a period of 10 years from the date of grant, they lapse. Furthermore, rights are forfeited if the employee leaves the Group before they vest.
Share options Details of the share options allocated and reversed are as follows:
December 2010Number of shares
December 2009Number of shares
Options outstanding at beginning of year 1 374 364 3 575 079 Adjustment to prior year closing balance (1 320) 930
1 373 044 3 576 009 Less: Options forfeited (6 190) (54 945)Less: Options exercised during the year (547 262) (2 146 700)
Options outstanding at year end 819 592 1 374 364
The market weighted average share price on the dates that share options were exercised during the year was R116,33.
97MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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The options outstanding at the end of the period under review have a weighted average remaining contractual life of three years (December 2009: four years). During the year ended 31 December 2010, no options were granted. The fair values as reflected on page 182 under note 22 of the financial statements were calculated using the stochastic model. The inputs into the model are reflected below:
December 2010
December 2009
Weighted average share price for the year R116,33 R114,05Weighted average exercise price R122,24 R111,40Expected life 1 year 1 yearRisk-free rate 5,80% 7,16%Expected dividend yield 1,80% 1,29%Expected volatility 25,45% 30,46%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the previous six years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The expected dividend yield was determined based on historical data.
Options exercised during the year yielded the following proceeds, after transaction costs:December
2010 R000
December 2009 R000
Ordinary share capital – at par * *Share premium 11 357 35 546 Proceeds 11 357 35 546 Fair value, at exercise date, of shares issued 56 435 232 309 *Amount less than R1 million.
MTN Group Limited Integrated Business Report for the year ended 31 December 201098
Directors’ report continued for the year ended 31 December 2010
The MTN Group share options, share appreciation rights and share rights schemes continued Share options continuedThe balances of share options are reflected below:
Offer dateStrikeprice
Number out-standing at
31 December2009
R
Forfeitedduring
2010R
Adjustmentduring
2010R
Exercisedduring
2010R
Number out-standing at
31 December2010
R
28 September 2001 13,53 235 904 (500) — (84 290) 151 1142 September 2002 9,31 506 730 — — (250 740) 255 9901 December 2003 27,00 294 366 (3 200) (1 320) (52 806) 237 0401 December 2004 40,50 337 364 (2 490) — (159 426) 175 448Total 1 374 364 (6 190) (1 320) (547 262) 819 592
MTN Group share appreciation rights scheme and share rights scheme (the rights schemes)The share appreciation rights scheme was implemented on 31 May 2006, and superseded the share option scheme.
On 26 August 2008, the board approved the share rights scheme, which superseded the share appreciation rights scheme. Both the rights schemes operate under the same provisions with the exception that the share rights scheme was extended to allow participation by junior managers.
Share rights under the rights schemes are granted to eligible employees by the relevant employer subsidiary company. Exercised rights are equity settled whereby the relevant MTN Group subsidiary purchases the required MTN shares in the open market.
The following is a summary of the outstanding share appreciation rights as at 31 December 2010 for the share appreciation rights scheme 2006:
Offer date
Strikeprice
R
Number out-standing at
31 December2009
Offered during
2010
Forfeitedduring
2010
Adjustmentduring
2010
Exercisedduring
2010
Number out-standing at
31 December2010
31 May 2006 56,83 286 160 (3 330) (107 040) 175 790 31 May 2006# 56,83 1 207 670 — (7 440) — (501 669) 698 56121 November 2006 71,00 2 324 980 — (960) — (1 178 100) 1 145 9201 January 2007 85,30 104 600 — — — (41 840) 62 7602 April 2007 98,50 23 700 — — — — 23 70022 June 2007 96,00 669 480 — (157 800) — (147 260) 364 42019 March 2008 126,99 519 400 — (19 600) — (27 700) 472 100
Total 5 135 990 — (189 130) — (2 003 609) 2 943 251# The vesting period in respect of part of the allocation made on 31 May 2006 was accelerated by six months, due to the fact that the Company had not issued any share incentive rights to eligible employees in 2005. The
remaining contractual life of these rights is thus reduced by six months.
99MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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The following is a summary of the outstanding share rights as at 31 December 2010 for the share rights scheme 2008:
Offer date
Strikeprice
R
Number out-standing at
31 December2009
Offered during
2010
Forfeitedduring
2010
Adjustmentduring
2010
Exercisedduring
2010
Number out-standing at
31 December2010
1 September 2008 118,64 2 242 200 — (149 820) 4 900 (163 740) 1 933 54028 June 2010 107,49 — 3 402 400 (130 400) — (15 700) 3 256 300Total 2 242 200 3 402 400 (280 220) 4 900 (179 440) 5 189 840
A valuation has been prepared using the stochastic model to determine the fair value of share appreciation rights and the expense to be recognised during the year.
The inputs into the stochastic model were as follows:December
2010December
2009
Share price at reporting date 134,42 117,9Expected life 1 – 5 years 1 – 5 yearsRisk-free rate 5,80% – 7,80% 7,16% – 8,39%Expected volatility 25,45% – 34,20% 30,46% – 39,23%Dividend yield 1,80% 1,29%
Expected volatility was determined by calculating the historical volatility of MTN Group share price over the previous six years. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The expected dividend yield was determined based on historical data.
The nominations, remunerations, human resources and corporate governance committee periodically assesses the effectiveness of the Company’s long-term incentive scheme, to ensure alignment with shareholder requirements and international best practice.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010100
Directors’ report continued for the year ended 31 December 2010
Equity compensation benefits for executive directors, the company secretary and directors of major subsidiariesParticipation in the MTN Group Limited share schemes for the year ended 31 December 2010.
Equity compensation benefits in respect of share options for executive directors and directors of major subsidiaries
Offer date
Strikeprice
RVesting
date Offered
Number out-standing at
31 December 2009
Exercised2010
Exercisedate
Exerciseprice
R
Number out-standing at
31 December 2010
RS Dabengwa 1 December 2003 27,00 01/12/2007 87 330 43 770 — — — 43 770 1 December 2003 27,00 01/12/2008 87 330 87 330 — — — 87 330
Total 174 660 131 100 131 100
KW Pienaar1 December 2004 40,50 01/12/2009 9 330 9 330 9 330 19/10/2010 127,00 —
Total 9 330 9 330 9 330 —
PD Norman2 September 2002 9,31 02/09/2005 110 020 20 20 26/11/2010 125,07 —2 September 2002 9,31 02/09/2006 165 030 35 030 35 030 26/11/2010 125,07 —2 September 2002 9,31 02/09/2007 165 030 65 030 65 030 26/11/2010 125,07 —
440 080 100 080 100 080 — — —
1 December 2004 40,50 01/12/2006 6 780 6 780 — — — 6 780 1 December 2004 40,50 01/12/2007 6 780 6 780 — — — 6 780 1 December 2004 40,50 01/12/2008 10 170 10 170 — — — 10 170 1 December 2004 40,50 01/12/2009 10 170 10 170 — — — 10 170
33 900 33 900 33 900
Total 473 980 133 980 100 080 33 900
101MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Offer date
Strikeprice
RVesting
date Offered
Number out-standing at
31 December 2009
Exercised2010
Exercisedate
Exerciseprice
R
Number out-standing at
31 December 2010
Z Bulbulia2 September 2002 9,31 02/09/2004 18 480 18 480 18 480 01/12/2010 123,59 —2 September 2002 9,31 02/09/2005 18 480 18 480 18 480 01/12/2010 123,59 —2 September 2002 9,31 02/09/2006 27 720 27 720 27 720 01/12/2010 123,59 —2 September 2002 9,31 02/09/2007 27 720 27 720 — — — 27 720
92 400 92 400 64 680 27 720 1 December 2003 27,00 01/12/2005 4 940 4 940 — — — 4 940 1 December 2003 27,00 01/12/2006 4 940 4 940 — — — 4 940 1 December 2003 27,00 01/12/2007 7 410 7 410 — — — 7 410 1 December 2003 27,00 01/12/2008 7 410 7 410 — — — 7 410
24 700 24 700 24 700 Total 117 100 117 100 64 680 52 420
AR Bing2 September 2002 9,31 02/09/2007 7 290 7 290 7 290 26/11/2010 125,07 —
7 290 7 290 7 290 —1 December 2004 40,50 01/12/2007 6 670 6 670 6 670 26/11/2010 125,07 —1 December 2004 40,50 01/12/2008 10 005 10 005 10 005 26/11/2010 125,07 —1 December 2004 40,50 01/12/2009 10 005 10 005 10 005 26/11/2010 125,07 —
26 680 26 680 26 680 —Total 33 970 33 970 33 970 —
MTN Group Limited Integrated Business Report for the year ended 31 December 2010102
Directors’ report continued for the year ended 31 December 2010
Directors’ shareholdings and dealingsThe interests of the directors and major subsidiaries directors in the ordinary shares of the Company were as follows:
DirectorDecember
2010December
2009 Beneficial
DDB Band 14 023 14 023 DirectPF Nhleko 120 413 3 349 896 DirectRS Dabengwa 1 465 559 1 414 818 DirectNP Mageza 400 — IndirectSB Mtshali## — 7 031 DirectRD Nisbet — 2 659 618 DirectNI Patel — 7 587 DirectKW Pienaar# 487 796 609 796 DirectZ Bulbulia# 40 000 40 000 DirectSL Botha# 300 000 404 996 DirectAR Bing# 136 836 100 273 DirectPD Norman# 314 996 314 996 DirectJ Desai# — 83 121 Direct
Total 2 880 023 9 006 155 # Major subsidiary director.** Company secretary
Total share dealings transactions concluded by directors, major subsidiaries directors and the company secretary during the financial year under review including options and transactions on MTN ordinary shares.
Transaction date Number of shares Sale price
Phuthuma Nhleko 17/11/2010 3 231 047 131,33**
Total 3 231 047
** Transactions on MTN ordinary shares.
103MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Directors’ shareholdings and dealings continuedTransaction date Number of shares Sale price Purchase price
Andrew Bing05/11/2010 6 000 127,75 —**26/11/2010 7 290 — 125,07*26/11/2010 26 680 — 125,07*
Total 39 970
Nazir Patel 15/11/2010 7 587 125,40**
Total 7 587
Bongi Mtshali17/11/2010 7 031 132,00**
Total 7 031
Karel Pienaar19/10/2010 9 330 127,00*02/11/2010 122 000 127,02**
Total 131 330
Paul Norman15/11/2010 100 080 131,29 —26/11/2010 100 080 — 125,07*
Total 200 160
Santie Botha19/11/2010 104 996 129,04**
Total 104 996
Zunaid Bulbulia01/12/2010 64 680 123,59*
Total 64 680
* Shares exercised under the share options scheme.** Transactions on MTN ordinary shares.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010104
Directors’ report continued for the year ended 31 December 2010
Directors’ interests in MTN Group held through acquisition of shares in MTN Zakhele Limited The following persons, being directors of MTN Group Limited and its major subsidiaries and the MTN company secretary were allocated the following number of MTN Zakhele shares which has a shareholding in MTN Group Limited shares.
Beneficiary Nature of interest Shares
PF Nhleko Direct beneficial 2 010 700MC Ramaphosa Indirect beneficial 9 367 465KP Kalyan Direct beneficial 27 700MLD Marole Direct beneficial 15 700MJN Njeke Direct beneficial 6 700NP Mageza Indirect beneficial 51 420SB Mtshali Indirect beneficial 6 500F Jakoet Direct beneficial 30 700CWN Molope Direct beneficial 1 000IN Mkhize Direct beneficial 2 000
Total 11 519 885
105MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Material resolutionsDuring the year there were no material resolutions from subsidiary companies.
Mergers and acquisitionsDetails of the MTN Group’s acquisitions and disposals are presented on pages 196 to 198�of the annual financial statements.
Events after the reporting dateNo material events have occurred between the date of these financial statements, and the date of approval the knowledge of which would affect the users of these statements to make proper evaluations and decisions. Property, plant and equipment There were no changes in the nature of property, plant and equipment nor in the policy regarding their use during the financial year under review.
American depository receipt facilityA sponsored American depository receipt facility has been established. This ADR facility is sponsored by the Bank of New York and details of the administrators are reflected under the administration page 251.
Borrowing powersIn terms of the articles of association of the Company, the borrowing powers of the Company are unlimited. However all borrowings by the MTN Group are subject to limitations expressed in the treasury policy. The details of borrowings appear in note 20 of the annual financial statements.
Going concernThe directors have reviewed the MTN Group’s budget and cash flow forecast for the year to 31 December 2011. On the basis of this review, and in the light of the current financial position and existing borrowing facilities, the directors are satisfied that the MTN Group has access to adequate resources to continue in operational existence for the foreseeable future and is a going concern and have continued to adopt the going-concern basis in preparing the financial statements.
Auditors PricewaterhouseCoopers Inc. and SizweNtsaluba VSP will continue in office as joint auditors in accordance with section 270 of the Companies Act. The audit committee reviewed the independence of the auditors during the period under review and declared itself satisfied that the auditors were independent of the Company.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010106
Group income statement for the year ended 31 December 2010
Note
December 2010
Rm
December 2009
Rm
Revenue 4 114 684 111 947
Direct network operating costs (16 818) (15 925)
Costs of handsets and other accessories (6 819) (6 297)
Interconnect and roaming (12 593) (15 166)
Employee benefits 5 (5 961) (5 843)
Selling, distribution and marketing expenses (14 741) (14 649)
Other operating expenses (10 446) (7 837)
Reversal of impairment/(impairment) of property, plant and equipment 10 231 (167)
Depreciation of property, plant and equipment 10 (13 248) (11 807)
Amortisation of intangible assets 11 (2 120) (2 668)
Impairment of goodwill 11 (32) —
Operating profit 5 32 137 31 588
Finance income 6 2 077 6 420
Finance costs 6 (6 171) (12 230)
Share of results of associates after tax 12 52 (5)
Profit before tax 28 095 25 773
Income tax expense 7 (11 268) (8 612)
Profit after tax 16 827 17 161
Attributable to
Equity holders of the Company 14 300 14 650
Non-controlling interest 2 527 2 511
16 827 17 161
Basic earnings per share (cents) 8 776,2 791,4
Diluted earnings per share (cents) 8 764,5 781,5
Dividend per share (cents) 9 343,0 181,0
The notes on pages 111 to 213 are an integral part of these consolidated financial statements.
107MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Group statement of comprehensive income for the year ended 31 December 2010
December 2010
Rm
December 2009
Rm
Profit after tax 16 827 17 161
Other comprehensive income
Exchange differences on translating foreign operations (9 811) (17 700)
Equity holders of the Company (9 318) (16 967)
Non-controlling interest (493) (733)
Cash flow hedges 77 (191)
Total comprehensive income/(loss) for the year 7 093 (730)
Attributable to
Equity holders of the Company 5 059 (2 508)
Non-controlling interest 2 034 1 778
7 093 (730)
The notes on pages 111 to 213 are an integral part of these consolidated financial statements.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010108
Group statement of financial position at 31 December 2010
Note
December 2010
Rm
December 2009
Rm
ASSETSNon-current assets 99 727 110 213 Property, plant and equipment 10 63 361 67 541 Intangible assets 11 30 266 36 064 Investment in associates 12 1 302 1 462 Loans and other non-current receivables 13 3 391 3 829 Deferred tax assets 14 1 407 1 317 Current assets 54 234 46 024 Inventories 15 1 589 1 522 Trade and other receivables 16 13 234 16 373 Taxation prepaid 26 721 113 Current portion of loans and other non-current receivables 13 2 458 3 269 Other investments 41 — 6 Restricted cash 28 285 742 Cash and cash equivalents 27 35 947 23 999 Assets of a disposal group classified as held for sale 17 825 —Total assets 154 786 156 237
EQUITY Ordinary shares and share premium 18 45 602 44 297 Retained earnings 48 977 40 990 Reserves 19 (22 724) (15 276)Total equity attributable to equity holders of the Company 71 855 70 011 Non-controlling interest 2 219 2 855 Total equity 74 074 72 866
LIABILITIESNon-current liabilities 33 995 28 426 Borrowings 20 24 857 21 066 Deferred tax liabilities 14 7 040 5 666 Other non-current liabilities 21 1 927 1 694Put option liability 22 171 —Current liabilities 46 717 54 945 Trade and other payables 23 20 055 24 740 Unearned income 5 750 4 708 Provisions 24 3 102 2 748 Taxation liabilities 26 4 459 3 675 Borrowings 20 10 431 14 498 Derivatives 40 255 585 Put option liability 22 2 625 2 638 Bank overdrafts 27 40 1 353
Total liabilities 80 712 83 371 Total equity and liabilities 154 786 156 237
The notes on pages 111 to 213 are an integral part of these consolidated financial statements.
109MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Group statement of changes in equity for the year ended 31 December 2010
Sharecapital
Rm
Sharepremium
Rm
Retained earnings
RmReserves
RmTotal
Rm
Non-controlling
interestRm
Totalequity
Rm
Balance at 1 January 2009 * 23 905 50 712 1 769 76 386 4 156 80 542
Transfers between reserves — — (188) 188 — — —
Purchase of non-controlling interest — — — (43) (43) — (43)
Newshelf share buy-back — — (21 226) — (21 226) — (21 226)
Share-based payments reserve — — — 84 84 — 84
Shares issued during the year — 20 392 — — 20 392 — 20 392
Comprehensive income/(loss) — — 14 650 (17 158) (2 508) 1 778 (730)
Dividends paid — — (3 382) — (3 382) (2 740) (6 122)
Other movements — — 424 (116) 308 (339) (31)
Balance at 31 December 2009 * 44 297 40 990 (15 276) 70 011 2 855 72 866
Balance at 1 January 2010 * 44 297 40 990 (15 276) 70 011 2 855 72 866
Sale of non-controlling interest — — — 60 60 — 60
Shares issued during the year * 11 — — 11 — 11
MTN Zakhele transaction * 1 294 — 1 382 2 676 — 2 676
Employee share option plan — — — 171 171 — 171
Share-based payments reserve — — — 87 87 — 87
Comprehensive income/(loss) — — 14 300 (9 241) 5 059 2 034 7 093
Dividends paid — — (6 313) — (6 313) (2 770) (9 083)
Other movements — — — 93 93 100 193
Balance at 31 December 2010 * 45 602 48 977 (22 724) 71 855 2 219 74 074
The notes on pages 111 to 213 are an integral part of these consolidated financial statements.
* Amounts less than R1 million.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010110
Group statement of cash flowfor the year ended 31 December 2010
Note
December 2010
Rm
December 2009
Rm
CASH FLOWS FROM OPERATING ACTIVITIESCash generated from operations 25 50 536 49 632 Interest received 1 207 1 835 Interest paid (2 674) (4 961)Dividends paid (6 313) (3 381)Income tax paid 26 (8 028) (6 843)
Net cash from operating activities 34 728 36 282
CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment (15 343) (27 720)
– to maintain operations (1 338) (3 526)– to expand operations (14 005) (24 194)Proceeds from sale of property, plant and equipment and intangible assets 162 115 Acquisition of intangible assets (1 235) (1 982)Loans repaid by third party 758 — Cash outflows from acquisitions net of cash acquired — (2 205)Increase in prepayments (43) (1 374)
Net cash used in investing activities (15 701) (33 166)
CASH FLOWS FROM FINANCING ACTIVITIESDividends paid to non-controlling shareholders (2 196) (2 701)Proceeds from the issuance of ordinary shares 1 306 36 Cash inflows/(outflows) from changes in shareholding 46.2 124 (26)Cash outflow on share buy-back — (463)Borrowings raised 6 724 11 945 Borrowings repaid (8 263) (10 647)Decrease in restricted cash 369 992 Other cash outflows (119) (88)Net cash used in financing activities (2 055) (952)
Net increase in cash and cash equivalents 16 972 2 164 Cash and cash equivalents at beginning of year 22 646 25 596 Exchange losses on cash and cash equivalents (3 711) (5 114)
Cash and cash equivalents at end of year 27 35 907 22 646
The notes on pages 111 to 213 are an integral part of these consolidated financial statements.
The cash flows shown above are presented net of VAT.
111MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Notes to the Group financial statements for the year ended 31 December 2010
1. REPORTING ENTITY MTN Group Limited is the holding company of the MTN Group (the Group) and is domiciled in the Republic of South Africa. The address of the
Company’s registered office is 216 – 14th Avenue, Fairland, Gauteng.
The consolidated financial statements of the Company for the year ended 31 December 2010 comprise the Company and its subsidiaries (together referred to as the “Group” and individually as “Group entities”) and the Group’s interests in associates and jointly controlled entities.
The Group is a leading provider of communications services, offering cellular network access and business solutions. The Group is listed in South Africa on the JSE Limited under the Industrial – telecommunications sector.
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES 2.1 Basis of preparation The principal accounting policies applied in the preparation of these consolidated financial statements are set out below and have been consistently
applied for all periods presented, unless otherwise stated.
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the South African Companies Act, 1973, as amended.
The financial statements have been prepared on the historical cost basis, except for the following which is measured at fair value; derivative financial instruments, financial instruments at fair value through profit or loss and available-for-sale financial assets. The methods used to measure fair value are discussed further in accounting policy note 2.27.
Amounts are rounded to the nearest million with the exception of earnings per share and the weighted average number of shares (note 8).
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an on going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in notes 2.28 and 2.29.
2.2 Going concern The Group’s and Company’s forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group and
Company should be able to operate within the level of its current funding.
After making enquiries, the directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. The Group and Company therefore continue to adopt the going concern basis in preparing their financial statements.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010112
Notes to the Group financial statements continued for the year ended 31 December 2010
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.3 Consolidation The Group financial statements incorporate the financial statements of MTN Group Limited and all its subsidiaries, joint ventures, associates and
special purpose entities for the reporting date 31 December 2010 on the basis outlined below.
2.3.1 Subsidiaries Subsidiaries are all entities (including special purpose entities) controlled by the Group. Control exists when the Group has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities, generally accompanying shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or currently convertible are considered when assessing whether the Group has the power to control another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group and are deconsolidated from the date that control ceases.
Special purpose entities (SPE) (including insurance cell captives and the various MTN Group staff incentive schemes) are consolidated when the substance of the relationship indicates that the SPE is controlled by the Group. The following indicators are considered:
In substance, the activities of the SPE are being conducted on behalf of the entity according to its specific business needs so that the entity obtains benefits from the SPE’s operation;
in substance, the entity has the decision-making powers to obtain the majority of the benefits of the activities of the SPE or, by setting up an “autopilot” mechanism, the entity has delegated these decision-making powers;
in substance, the entity has rights to obtain the majority of the benefits of the SPE and therefore may be exposed to risks incidental to the activities of the SPE; or
in substance, the entity retains the majority of the residual or ownership risks related to the SPE or its assets in order to obtain benefits from its activities.
All intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated on consolidation. Unrealised losses are also eliminated but are considered an impairment indicator of the asset transferred.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of acquisition. Acquisition-related costs are recognised in profit or loss. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the
113MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), is recognised immediately in profit or loss as a bargain purchase gain.
Non-controlling shareholders are treated as equity participants and, therefore, all acquisitions of non-controlling interests or disposals by the Group of its non-controlling interests in subsidiary companies where control is maintained subsequent to the disposals are accounted for as equity transactions with non-controlling shareholders. Consequently, the difference between the purchase price and the book value of a non-controlling interest purchased is recorded in equity. All profits and losses arising as a result of the disposal of interests in subsidiaries to non-controlling shareholders, where control is maintained subsequent to the disposal, are also recorded in equity.
When the consideration transferred by the Group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the “measurement period” (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.
The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 Financial Instruments: Recognition and Measurement, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss.
When a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (ie the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interest in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of.
Business combinations that took place prior to 1 January 2010 were accounted for in accordance with the previous version of IFRS 3 Business Combinations.
Accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group.
The Company accounts for investments in subsidiaries at cost, which includes transaction costs, less accumulated impairment losses.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010114
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.3 Consolidation (continued)2.3.1 Subsidiaries (continued) When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in
carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are classified to profit or loss where appropriate.
2.3.2 Associates Associates are all entities over which the Group has significant influence, but not control, over the financial and operating policies. Significant influence
is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity.
Associates are accounted for using the equity method and are recognised initially at cost. The Group’s investment in associates includes goodwill identified on acquisition net of any accumulated impairment losses. The consolidated financial statements include the Group’s share of post-acquisition accumulated profits or losses of associated companies in the carrying value of the investments, which are generally determined from their latest audited financial statements and the annual profit attributable to the Group is recognised in profit or loss. The Group’s share of post-acquisition movement in reserves is recognised in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.
The carrying amount of such interests is reduced to recognise any potential impairment, in the value of individual investments. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognise further losses, unless the Group has an obligation, issued guarantees or made payments on behalf of the associate.
Where another Group entity transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to align them with the policies of the Group.
Dilution gains and losses arising in investments in associates are recognised in profit or loss.
Notes to the Group financial statements continued for the year ended 31 December 2010
115MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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2.3.3 Joint ventures A joint venture is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control.
Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest, are referred to as jointly controlled entities. The Group reports its interests in jointly controlled entities using the proportionate consolidation method of accounting. The Group’s share of the assets, liabilities, income and expenses and cash flows of jointly controlled entities are combined with the equivalent items in the Group annual financial statements on a line-by-line basis.
Where the Group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the Group’s interest in the joint venture, except where unrealised losses provide evidence of an impairment of the asset transferred.
Accounting policies of joint ventures have been changed where necessary to align them with the policies adopted by the Group.
The Company accounts for investments in joint ventures at cost, which includes transaction costs, less accumulated impairment losses.
2.3.4 Common control transactions For transactions in which combining entities are controlled by the same party or parties before and after the transaction and where that control is
not transitory are referred to as common control transactions. The Group’s accounting policy for the acquiring entity would be to account for the transaction at book values as reflected in the consolidated financial statements of the selling entity.
The excess of the cost of the transaction over the acquirer’s proportionate share of the net assets value acquired in common control transactions, will be allocated to the common control reserve in equity.
2.4 Segment reporting The Group has three reportable segments, as described below, that are used by the Group Executive Committee to make key operating decisions,
allocate resources and assess performance. The reportable segments are geographically differentiated regions, namely South and East Africa (SEA), West and Central Africa (WECA) and the Middle East and North African (MENA) regions.
Operating results are reported and reviewed regularly by the Group Executive Committee and include items directly attributable to a segment as well as those that can be attributed on a reasonable basis, whether from external transactions or from transactions with other Group segments.
Unallocated items mainly comprise corporate expenses which do not directly relate to the operating activities of the segments or which cannot be re-allocated on a reasonable basis. Segment results are determined before any adjustment for non-controlling interest.
Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010116
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.5 Foreign currency translation2.5.1 Functional and presentation currency Items included in the financial statements of each entity in the Group are measured using the currency that best reflects the primary economic
environment in which the entity operates (the functional currency). The Group financial statements are presented in South African rand, which is the functional and presentation currency of the parent company and the presentation currency of the Group.
2.5.2 Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains
and losses resulting from the settlement of such transactions and from the translation at reporting date exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss except when deferred in other comprehensive income as qualifying cash flow hedges.
Changes in the fair value of monetary securities denominated in foreign currency classified as available-for-sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in profit or loss, and other changes in the carrying amount are recognised in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available-for-sale are included in other comprehensive income.
2.5.3 Group companies The financial statements of all Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different
from the presentation currency are translated into the presentation currency as follows: Assets and liabilities are translated at rates of exchange ruling at the reporting date; specific transactions in equity is translated at rates of exchange ruling at the transaction date; income and expenditure and cash flow items are translated at weighted average exchange rates for the period; and foreign exchange translation differences are recognised as other comprehensive income.
An entity may have a monetary item that is receivable from or payable to a foreign operation. An item for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the entity’s net investment in that foreign operation. On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to other comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in profit or loss as part of the gain or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the exchange rate ruling at the reporting date.
Notes to the Group financial statements continued for the year ended 31 December 2010
117MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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2.6 Property, plant and equipment Property, plant and equipment are measured at historical cost less accumulated depreciation and accumulated impairment losses. Property, plant and
equipment acquired through business combinations are initially shown at fair value and are subsequently carried at the initially determined fair value less accumulated depreciation and impairment losses.
Historical cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, and the present value of future decommissioning costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of the equipment.
In respect of borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after 1 January 2010, the Group capitalises borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. In respect of the borrowing costs relating to qualifying assets for which the commencement date for capitalisation is before 1 January 2010, the Group recognises the borrowing cost in profit or loss. The Group considers more than 12 months to be a considerable time to acquire, construct or produce a qualifying asset.
When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.
Property, plant and equipment under construction is measured at initial cost and depreciated from the date the asset is available-for-use in the manner intended by management over its useful life. Assets are transferred from capital work-in-progress to an appropriate category of property, plant and equipment when commissioned and ready for its intended use.
Depreciation of property, plant and equipment is recognised to write off the cost of the asset to its residual value, on the straight-line basis, over its
expected useful life as follows: Buildings owned 3 – 60 years Buildings leased 3 – 20 years (shorter of lease term and useful life) Network infrastructure 3 – 20 years Information systems equipment 3 – 10 years Furniture and fittings 3 – 10 years Leasehold improvements 3 – 10 years (shorter of lease term and useful life) Office equipment 3 – 10 years Motor vehicles 3 – 10 years The depreciation method and the assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Land is not depreciated. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where
shorter, the expected term of the relevant lease.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010118
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.6 Property, plant and equipment (continued) Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
An asset’s carrying amount is impaired immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount as disclosed in note 2.10.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the proceeds from the disposal and the carrying amount of the asset, and is included in profit or loss.
2.7 Leases Leases over property, plant and equipment are classified as finance leases whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. Assets held under finance leases are capitalised at the lower of the fair value of the leased asset and the estimated present value of the minimum lease payments at the inception of the lease. The corresponding liability to the lessor, net of finance charges, is included in the statement of financial position under other non-current/current liabilities. Each lease payment is allocated between the liability and finance charges. Finance costs, which represent the difference between the total lease commitments and fair value of the assets acquired, are charged to profit or loss over the term of the relevant leases so as to produce a constant periodic rate of interest on the remaining balance of the obligations for each accounting period.
Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant leases.
In all significant leasing arrangements in place during the period, the Group acted as the lessee. 2.8 Intangible assets 2.8.1 Computer software Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring the specific software into use. These costs
are amortised over their estimated useful lives (three to five years). Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs that are directly associated with the
production of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits, are recognised as intangible assets when the following criteria are met:
It is technically feasible to complete the software product so that it will be available for use; management intends to complete the software product and use or sell it;
Notes to the Group financial statements continued for the year ended 31 December 2010
119MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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there is an ability to use or sell the software product; it can be demonstrated how the software product will generate probable future economic benefits; adequate technical, financial and other resources to complete the development and to use or sell the software product are available; the expenditure attributable to the software products during its development can be reliably measured. Direct costs include the software development employee costs and an appropriate portion of relevant overheads. Expenditure that enhances or
extends the performance of the computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development cost previously recognised
as an expense is not recognised as an asset in a subsequent period. Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding three years).
2.8.2 Licences Licences are initially shown at historical cost. Licences have a finite useful life and are subsequently carried at cost less accumulated amortisation
and impairment losses. Licences acquired through business combinations are initially shown at fair value and are subsequently carried at the initially determined fair value less accumulated amortisation and impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of licences over their estimated useful lives from the commencement of service of the network. The useful lives and renewal periods of licences are given in note 11, and are determined primarily with reference to the unexpired licence period.
2.8.3 Goodwill Goodwill arising on the acquisition of subsidiaries, joint ventures and associates is included in intangible assets. Goodwill represents the excess of the
cost of the acquisition over the fair value of the Group’s interest in the fair value of the net identifiable assets and liabilities of the acquiree at the date of acquisition. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.
Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill arising on the acquisition of an associate is included in “investments in associates”, and is tested for impairment as part of the overall balance.
Gains and losses on the disposal of an entity include the carrying amount of goodwill allocated to the entity sold.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those CGUs or groups of CGUs that are expected to benefit from the business combination in which the goodwill arose, identified according to operating segment.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010120
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.8 Intangible assets (continued)2.8.4 Customer relationships Customer relationships acquired through business combinations are initially shown at fair value, and are subsequently carried at the initially determined
fair value less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the value of the customer bases over their estimated useful lives. Prepaid customer bases are amortised over two to five years and postpaid customer bases are amortised over five years.
2.8.5 Other intangible assets Other intangible assets that are acquired by the Group, which have finite useful lives are measured at cost less accumulated amortisation and
impairment losses. Other intangible assets acquired through business combinations are initially shown at fair value and are subsequently carried at the initially determined fair value less accumulated amortisation and impairment losses. Amortisation is recognised in profit and loss on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use.
2.8.6 Non-current assets (or disposal group) held for sale Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale
transaction and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell if their carrying amount is to be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable.
2.8.7 Impairment of non-financial assets Intangible assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to
amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.
2.9 Financial instruments Financial assets and financial liabilities are recognised on the Group’s statement of financial position when the Group becomes a party to the
contractual provisions of the instrument.
2.9.1 Offsetting financial instruments Offsetting of financial assets and liabilities arises when there is a legally enforceable right to offset the recognised amounts and there is an intention to
settle on a net basis, or realise the asset and settle the liability simultaneously. The net amount is reported in the statement of financial position.
Notes to the Group financial statements continued for the year ended 31 December 2010
121MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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2.9.2 Non-derivative financial instruments The Group classifies its financial instruments into the following categories: financial assets at fair value through profit or loss, loans and receivables and
available-for-sale financial assets. The classification is dependent on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.
Non-derivative financial instruments comprise investments in equity and debt securities, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.
Cash and cash equivalents comprise cash on hand, deposits held on call and investments in money market instruments, net of bank overdrafts, all of which are available for use by the Group. Bank overdrafts are included within current liabilities on the statement of financial position, unless the entity has a legally enforceable right to set off the amounts and intends to settle on a net basis, or realise the asset and settle the liability simultaneously. Derivative financial instruments with a maturity date of three months or less are included in cash and cash equivalents.
Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.
(a) Financial assets at fair value through profit or loss An instrument is classified at fair value through profit or loss if it is held for trading, ie acquired principally for the purpose of selling the item in
the short term. Upon initial recognition attributable transaction costs are recognised in profit or loss when incurred, assets in this category are classified as current assets. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.
(b) Loans and other receivables Loans and other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are
included in current assets, except for maturities greater than 12 months after the end of the reporting period. Loans and receivables comprise of loans, trade and other receivables (excluding prepayments), restricted cash and cash equivalents. Loans and receivables are measured at amortised cost using the effective interest method, less any accumulated impairment losses.
(c) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated in this category or not classified in any of the other categories.
They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale monetary items, are recognised directly in other comprehensive income. When an investment is derecognised, the cumulative gain or loss in equity is transferred to profit and loss.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010122
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.9 Financial instruments (continued)2.9.2 Non-derivative financial instruments (continued) (d) Financial liabilities Financial liabilities comprise trade and other payables, borrowings and other non-current liabilities (excluding provisions). Financial liabilities are
measured at amortised cost using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after
the reporting date.
Derecognition Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Financial liabilities are derecognised when the obligation specified in the contract is discharged, cancelled or expires.
2.9.3 Derivative financial instruments Derivatives are initially recognised at fair value on the date the derivative contract is entered into and attributable transaction costs are recognised in profit or
loss when incurred. Subsequently derivatives are remeasured at their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either:
(a) hedges of the fair value of recognised liabilities (fair value hedge); (b) hedges of a particular risk associated with a recognised liability or a highly probable forecast transaction (cash flow hedge); or (c) hedges of a net investment in a foreign operation (net investment hedge). The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedged transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes are disclosed in note 40. Movements on the hedging reserve in
shareholders’ equity are shown in note 19. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.
2.9.4 Derivative financial instruments and hedging activities (a) Fair value hedges Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in profit or loss, together with any changes in
the fair value of the hedged asset or liability that are attributable to the hedged risk.
Notes to the Group financial statements continued for the year ended 31 December 2010
123MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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If the hedge no longer meets the criteria for hedge accounting, the adjustment of the carrying amount of a hedged item for which the effective method is used, is amortised to profit or loss over the period to maturity.
(b) Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in other
comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in equity are recycled to profit or loss in the periods when the hedged item affects profit or loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, hedge accounting is discontinued prospectively. Any cumulative gain or loss existing in equity remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profit or loss.
Gains or losses accumulated in equity are included in profit or loss when the foreign operation is partially disposed of or sold.
(c) Net investment hedge Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss.
Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold. (d) Derivatives at fair value through profit or loss Certain derivative instruments do not qualify for hedge accounting and are accounted for at fair value through profit or loss. Changes in the fair value
of these derivative instruments that do not qualify are recognised immediately in profit or loss. Embedded derivatives Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract
and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.
Changes in the fair value of separable embedded derivatives are recognised immediately in profit or loss.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010124
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.10 Impairment2.10.1 Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is
considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the
present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its fair value. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered an indicator that the securities are impaired.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups
that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in
equity, is transferred to profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial
assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, the reversal is recognised directly in equity.
Trade and other receivables Trade receivables are amounts due from customers for merchandise sold or services rendered in the ordinary course of business. If collection is
expected in one year or less, they are classified as current assets, if not they are classified as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measure at amortised cost using the effective interest method, less provision for impairment.
An impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The carrying amount of the trade receivable is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited to profit or loss.
Notes to the Group financial statements continued for the year ended 31 December 2010
125MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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2.10.2 Non-financial assets The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the “cash-generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash-generating units that are expected to benefit from the synergies of the combination.
The carrying amounts of the Group’s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. Goodwill is deemed to have an indefinite useful life.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
2.11 Finance income and expenses Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on disposal of
available-for-sale financial assets, changes in the fair value of financial assets at fair value through profit or loss, foreign currency gains and gains on hedging instruments that are recognised in profit or loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method.
Finance expenses comprise interest expenses on borrowings, unwinding of the discount on provisions, changes in the fair value of financial assets at fair value through profit or loss, impairment losses recognised on financial assets, foreign exchange losses and any losses on hedging instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method, unless the borrowing costs are directly attributable to the acquisition, construction or production of qualifying assets, in which case the directly attributable borrowing costs are capitalised.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010126
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.12 Inventories Inventory mainly comprises items of equipment held for sale or rental and consumable items. Inventories are measured at the lower of cost and net realisable value. The cost of inventory is determined using the weighted average
method. Cost comprises direct materials and, where applicable, overheads that have been incurred in bringing the inventories to their present location and condition, excluding borrowing costs. Net realisable value represents the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Where appropriate, an impairment provision is raised in respect of obsolete and defective inventories.
2.13 Share capital Ordinary shares are classified as equity. Incremental external costs directly attributable to the issue of ordinary shares or share options are recognised in
equity as a deduction, net of tax from the proceeds.
Where the Company or its subsidiaries purchase the Company’s equity share capital (treasury shares), the amount paid, including any directly attributable incremental external costs net of income taxes, is deducted from total shareholders’ equity as treasury shares. When treasury shares are subsequently reissued or sold, the amount received, net of any directly attributable incremental transaction costs and the related income tax effects, is recognised as an increase in equity.
2.14 Trade payables Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable
are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. 2.15 Borrowings Borrowings are measured initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is
recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the
facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates.
Notes to the Group financial statements continued for the year ended 31 December 2010
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2.16 Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except to the extent it relates to items recognised in
other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity, respectively.
Current income tax Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the reporting date in the
countries where the Group’s subsidiaries, joint ventures and associates operate and generate taxable income, and any adjustment to tax payable in respect of previous years. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax Deferred income tax is recognised using the statement of financial position liability method, providing for temporary differences arising between the
tax bases of assets and liabilities and their carrying values for financial reporting purposes. Deferred income tax is not recognised for the following temporary differences: the initial recognition of an asset or liability in a transaction (other than a business combination) that at the time of the transaction affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred income tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred income tax is measured at tax rates (and laws) that have been enacted or substantially enacted at the reporting date and are expected to apply to temporary differences when they reverse.
Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current income tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, where there is an intention to settle these balances on a net basis.
Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures are not recognised if the parent company is in a position to control the timing of the reversal and if the reversal is unlikely to take place in the foreseeable future.
A deferred income tax asset is recognised for unused tax losses or deductible temporary differences only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
2.17 Employee benefits Short-term employee benefits Remuneration to employees in respect of services rendered during a reporting period is recognised on an undiscounted basis as an expense in that
reporting period. A liability is recognised for accumulated leave and for non-vested short-term benefits when there is no realistic alternative other than to settle the liability, and at least one of the following conditions is met:
There is a formal plan and the amounts to be paid are determined before the time of issuing the financial statements; or achievement of previously agreed bonus criteria has created a valid expectation by employees that they will receive a bonus and the amount can
be determined before the time of issuing the financial statements.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010128
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.17 Employee benefits (continued) Share-based payment transactions The Group operates two staff share incentive schemes, the MTN Group Limited share option scheme and the MTN Group share appreciation rights scheme.
Equity settled These schemes are accounted for as equity-settled share-based payments to employees. Equity-settled share-based payments are measured at fair value
(excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest. The expense is adjusted to reflect the actual number of share options for which the related service and non-market-based vesting conditions are met.
Where employees exercise options in terms of the rules and regulations of the option schemes, treasury shares if available within the MTN Group Share Trust, are allocated, or alternatively new shares are issued to participants as beneficial owners. The directors procure a listing of these shares on the JSE Limited on which the company’s shares are listed. For the share option scheme, in exchange for the share options the participants entitled to such share options pay a consideration equal to the option price allocated to them. The nominal value of shares issued is credited to share capital and the difference between the nominal value and the option price is credited to share premium. The share appreciation rights scheme is exercised at the participants’ election in terms of the vesting period and on the date exercised the benefits associated with the share appreciation rights will be received by the participant. At the participants’ election any tax associated with the rights awards and the settlement of the strike price can either be settled in cash or MTN would act as agent and dispose of the shares on the participants’ behalf.
The proceeds of the disposal will be used to settle the participants’ obligations. Further details of equity compensation schemes are provided in the Directors’ report.
Defined contribution plans Group companies operate various defined contribution schemes.
A defined contribution plan is a post-employment benefit plan under which the Group pays a fixed percentage of employees’ remuneration as contributions into a separate entity (a fund), and will have no further legal or constructive obligations to pay additional contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Contributions to defined contribution plans in respect of services rendered during a period are recognised as an employee benefit expense when they are due.
Termination benefits Termination benefits may be payable when an employee’s employment is terminated before the normal retirement date due to death or retrenchment
or whenever an employee accepts voluntary redundancy in exchange for these benefits. Termination benefits are charged against income when the Group is demonstrably committed to any such plan without the possibility of withdrawal or to provide termination benefits as a result of an offer made to encourage voluntary redundancy and it is probable the offer will be accepted, and the number of acceptances can be estimated reliably. Benefits falling due more than 12 months after reporting date are discounted to their present value. In the case of an offer made to encourage voluntary redundancy the termination benefits are measured based on the number of employees expected to accept the offer.
Notes to the Group financial statements continued for the year ended 31 December 2010
129MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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2.18 Basis of accounting of underwriting activities Underwriting results are determined on an annual basis whereby the incurred cost of claims, commission and related expenses are charged against the
earned proportion of premiums, net of reinsurance, as follows: Premiums written relate to business incepted during the period and exclude value added tax; unearned premiums represent the portion of premiums written during the period that relate to unexpired terms of policies in force at the reporting
date, generally calculated on a time-apportionment basis; claims incurred comprise claims and related expenses paid in the period and changes in the provisions for claims incurred but not reported and
related expenses, together with any other adjustments to claims from previous years. Where applicable, deductions are made for salvage and other recoveries;
claims outstanding represent the ultimate cost of settling all claims (including direct and indirect settlement costs) arising from events that have occurred up to the reporting date, including provision for claims incurred but not yet reported, less any amounts paid in respect of those claims. Claims outstanding are reduced by anticipated salvage and other recoveries.
2.19 Provisions A provision is recognised when there is a present legal or constructive obligation as a result of a past event for which it is more likely than not that an
outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognised as a finance cost.
Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable
cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with the contract.
Decommissioning provision In accordance with the Group’s policy and applicable legal requirements, a provision for the costs of decommissioning base stations, and the related
expense, is recognised when a base station is constructed on a site.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010130
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.20 Revenue recognition Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s
activities. Revenue is shown, net of indirect taxes, estimated returns and trade discounts and after eliminating sales within the Group.
Revenue from the sale of goods and the rendering of services is recognised when it is probable that the economic benefits associated with a transaction will flow to the Group and the amount of revenue, and associated costs incurred or to be incurred, can be measured reliably. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved.
Postpaid and prepaid products with multiple deliverables are defined as multiple element arrangements. Postpaid products typically include the sale of a handset, activation fee and a service contract; and prepaid contract include a SIM card and airtime. These arrangements are divided into separate units of accounting, which is based on the determination of each deliverable’s separate value to the customer on a stand-alone basis. The arrangement consideration is then allocated to the units of accounting using the residual value method.
The main categories of revenue and the bases of recognition are as follows:
2.20.1 Postpaid/contract products Connection fees: Revenue is recognised on the date of activation by the GSM operator of a new Subscriber Identification Module (SIM) card; access charges: Revenue is recognised in the period to which it relates; airtime: Revenue is recognised on the usage basis commencing on the date of activation.
The terms and conditions of bundled airtime products, may allow for the carry over of unused minutes. The revenue related to the unused airtime is deferred and recognised when utilised by the customer or on termination of the contract.
2.20.2 Prepaid products SIM kits: Revenue is recognised on the date of sale; connection fees: Revenue is recognised on the date of activation; airtime: Revenue is recognised on the usage basis commencing on the date of activation.
Unused airtime is deferred and recognised when unutilised by the customer or on termination of the customer relationship.
2.20.3 Dividend income Dividend income is recognised when the right to receive payment is established.
2.20.4 Interest income Interest income is recognised using the effective interest method. When a loan and receivable is impaired, the Group reduces the carrying amount
to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loans and receivables are recognised using the effective interest rate.
Notes to the Group financial statements continued for the year ended 31 December 2010
131MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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2.20.5 Other revenue Equipment sales: All equipment sales to third parties are recognised only when risks and rewards of ownership are transferred to the buyer; interconnect/roaming/data: Revenue is recognised on a usage basis, unless it is not probable on transaction date that the interconnect revenue will
be received; in which case interconnect revenue is recognised only when the cash is received.
2.21 Connection incentives Intermediaries are given cash incentives by the Group to connect new customers and upgrade existing customers. Connection incentives are expensed
in the period in which they are incurred.
2.22 Dividends payable Dividends payable are recognised as a reduction from equity in the period in which they are approved by the Company’s shareholders.
2.23 Earnings per ordinary shares Earnings per ordinary share are calculated using the weighted average number of ordinary shares in issue during the period and are based on the net
profit attributable to ordinary shareholders.
2.24 Headline earnings per ordinary share Headline earnings per ordinary share are calculated using the weighted average number of ordinary shares in issue during the period and are based
on the earnings attributable to ordinary shareholders, after excluding those items as required by Circular 3/2009 issued by the South African Institute of Chartered Accountants (SAICA).
2.25 Secondary taxation on companies Secondary taxation on companies (STC) is provided for at a rate of 10% on the amount by which dividends declared by the Group exceeds dividends
received. Deferred tax on unutilised STC credits is recognised to the extent that STC payable on future dividend payments is likely to be available for set-off.
2.26 New accounting standards and International Financial Reporting Interpretation Committee (IFRIC) interpretations Certain new accounting standards, amendments and interpretations to existing standards have been published that are mandatory for accounting
periods beginning on or after 1 January 2010 or later periods, which the Group has elected not to early adopt. (a) Standards, amendments and interpretations effective for the first time for the financial year beginning 1 January 2010 It should be noted that all of the standards, amendments and interpretations listed below did not have a material impact on the Group in 2010,
unless otherwise stated.
IAS 7 (Amendment) Cash flow statements (effective 1 January 2010) The amendment requires that only expenditures that result in recognised assets in the statement of financial position can be classified as investing
activities.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010132
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.26 New accounting standards and International Financial Reporting Interpretation Committee (IFRIC) interpretations (continued) (a) Standards, amendments and interpretations effective for the first time for the financial year beginning 1 January 2010 (continued) IAS 17 (Amendment) Leases (effective 1 January 2010) The amendment removes the specific guidance regarding the classification of leases of land, so as to eliminate inconsistency with the general
guidance on lease classification. As a result, leases of land should be classified as either finance or operating, using the principles of IAS 17.
IFRS 3 (Revised) Business combinations (effective from 1 July 2009) The new standard continues to apply the acquisition method to business combinations, with some significant changes. For example, all payments
to purchase a business are to be recorded at fair value at the acquisition date, with some contingent payments subsequently remeasured at fair value. Goodwill may be calculated based on the parent’s share of net assets or it may include goodwill related to the non-controlling interest. All transaction costs will be expensed.
IAS 27 (Revised) Consolidated and Separate Financial Statements (effective 1 July 2009) IAS 27 (Revised) requires the effect of all transactions with non-controlling interests to be recorded in equity if there is no change in control. They
will no longer result in goodwill or gains or losses. The standard also specifies the accounting when control is lost. Any remaining interest in the entity is remeasured at fair value and a gain or loss is recognised in profit or loss.
IFRS 5 Non-current Assets held for sale and discontinued operations This standard has also been amended to require that assets are classified as held for distribution only when they are available for distribution in
their present condition and the distribution is highly probable. IAS 36 (Amendment) Impairment of assets (effective 1 January 2010) The amendment clarifies that the largest cash-generating unit (or group of units) to which goodwill should be allocated for the purposes of
impairment testing is an operating segment, as defined by paragraph 5 of IFRS 8 Operating segments (that is, before the aggregation of segments with similar economic characteristics).
IFRS 2 (Amendment) Group cash-settled share-based payment transactions (effective 1 January 2010) The amendment clarifies the accounting for group cash-settled share-based payment transactions. The entity receiving the goods or services shall
measure the share-based payment transaction as equity-settled only when the awards granted are its own equity instruments, or the entity has no obligation to settle the share-based payment transaction.
The entity settling a share-based payment transaction when another entity in the group receives the goods or services recognises the transaction as equity-settled only if it is settled in its own equity instruments. In all other cases, the transaction is accounted for as cash-settled.
(b) Standards, amendments and interpretations effective in 2010 but currently not relevant to the Group (although they may affect the
accounting for future transactions and events) The following standards, amendments and interpretations to published standards are mandatory for accounting periods beginning on or after
1 January 2010, but are not considered to be relevant to the Group’s operations in the current year:
Notes to the Group financial statements continued for the year ended 31 December 2010
133MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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IFRS 1 (Revised) First-time Adoption of International Financial Reporting Standards – Revised (effective 1 July 2009) The revised standard has an improved structure but does not contain any technical changes. IFRS 2 (Amendment) Share-based payment (effective from 1 January 2010) The amendment specifically removes contributions of a business formation of a joint venture and common control transactions from the scope of IFRS 2. IAS 18 (Amendment) Revenue (effective 1 July 2009) This amendment determines whether an entity is acting as a principal or as an agent. IAS 38 (Amendment) Intangible assets (effective 1 January 2010) The amendment provides further guidance on the valuation techniques commonly used by entities when measuring the fair value of intangible
assets acquired in a business combination that are not traded in active markets. IAS 39 (Amendment) Financial Instruments: Recognition and measurement (effective 1 January 2010) The amendment provides guidance as to when to recognise gains or losses on hedging instruments as a reclassification adjustment in a cash
flow hedge of a forecast transaction that results subsequently in the recognition of a financial instrument. The amendment further clarifies that gains or losses should be reclassified from equity to profit or loss in the period in which the hedged forecast cash flow affects the profit or loss.
IAS 39 (Amendment) Financial Instruments: Recognition and measurement (effective 1 January 2010) The amendment provides additional guidance that prepayment options, the exercise price of which compensates the lender for the loss from
reinvestment risk, should be considered closely related to the host debt contract. The amendment also provides additional guidance to the scope exemption in paragraph 2 (g) of IAS 39 to clarify that:
(a) it only applies to binding (forward) contracts between an acquirer and a vendor in a business combination to buy an acquiree at a future date; (b) the term of the forward contract should not exceed a reasonable period normally necessary to obtain any required approvals and to complete
the transaction; (c) the exemption should not be applied to option contracts (whether or not currently exercisable) that on exercise will result in control of an
entity, nor by analogy to investments in associates and similar transactions. IAS 39 (Amendment) Financial Instruments: Recognition and measurement Eligible Hedged Items (effective 1 July 2009) The amendment makes two significant changes. It prohibits designating inflation as a hedgeable component of a fixed rate debt. It also prohibits
including time value in the one-sided hedged risk when designating options as hedges.
IAS 39 (Amendment) Financial Instruments: Recognition and measurement Scope exemption for business combination contracts. IFRIC 17 Distribution of non-cash assets to owners (effective 1 July 2009) The interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a
distribution of reserves or as dividends.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010134
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.26 New accounting standards and International Financial Reporting Interpretation Committee (IFRIC) interpretations (continued) (b) Standards, amendments and interpretations effective in 2010 but currently not relevant to the Company (although they may affect the
accounting for future transactions and events) (continued) IFRIC 18 Transfers of assets from customers This interpretation is effective for transfer of assets received on or after 1 July 2009. This interpretation clarifies the requirements of IFRS for agreements in
which an entity receives from a customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network or to provide the customer with ongoing access to a supply of goods or services (such as a supply of electricity, gas or water). In some cases, the entity receives cash from a customer that must be used only to acquire or construct the item of property, plant, and equipment in order to connect the customer to a network or provide the customer with ongoing access to a supply of goods or services (or to do both).
IFRIC 9 Reassessment of embedded derivatives and IAS 39, Financial instruments: Recognition and measurement (effective 1 July 2009) This amendment to IFRIC 9 requires an entity to assess whether an embedded derivative should be separated from a host contract when the entity
reclassifies a hybrid financial asset out of the “fair value through profit or loss” category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. If the entity is unable to make this assessment, the hybrid instrument must remain classified as fair value through profit or loss in its entirety.
IAS 38 (Amendment) Intangible assets (effective 1 January 2010) The amendment clarifies guidance in measuring the fair value of an intangible asset acquired in a business combination and permits the grouping
of intangible assets as a single asset if each asset has similar useful economic lives.
IAS 1 (Amendment) Presentation of financial statements (effective 1 January 2010) The amendment clarifies that the potential settlement of a liability by the issue of equity is not relevant to its classification as current or non-
current. By amending the definition of a current liability, the amendment permits a liability to be classified as non-current (provided that the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months after the end of the accounting period) notwithstanding the fact that the entity could be required by the counterparty to settle in shares at any time.
(c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by
the Group Certain new accounting standards, amendments and interpretations to existing standards have been published that are mandatory for accounting
periods beginning on or after 1 January 2011 or later periods, and which the Group has elected not to early adopt. Management is still in the process of assessing the impact of these standards and interpretations on the operations of the Group. These standards
and interpretations will be adopted in the year in which they become effective.
Notes to the Group financial statements continued for the year ended 31 December 2010
135MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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IFRS 1 (Amendment) Limited exemption from comparative IFRS 7 disclosures for first-time adopters The amendment to IFRS 1 provides first-time adopters with the same transition provisions as included in the amendment to IFRS 7. The
amendment is effective for annual periods beginning on or after 1 July 2010 with early adoption permitted. IFRS 7 (Amendment) Disclosures – Transfer of financial assets The amendments are intended to address concerns raised during the financial crisis by the G20, among others, that financial statements did not
allow users to understand the ongoing risks the entity faced due to derecognised receivables and other financial assets. IFRS 9 Financial Instruments (effective 1 January 2013) IFRS 9 Financial Instruments issued in November 2009 and amended in October 2010 introduces new requirements for the classification and
measurement of financial assets and financial liabilities and for derecognition. IFRS 9 outlines all recognised financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be
subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. All other debt investments and equity investments are measured at their fair values at the end of subsequent accounting periods.
IFRS 9 requires the classification and measurement of financial liabilities related to the accounting for changes in fair value of a financial
liability (designated as at fair value through profit or loss) attributable to changes in the credit risk of that liability. Specifically, under IFRS 9, for financial liabilities that are designated as at fair value through profit or loss, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognised in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Previously, under IAS 39, the entire amount of the change in the fair value of the financial liability designated as at fair value through profit or loss was recognised in profit or loss.
IAS 24 (Revised) Related party disclosures, issued in November 2009 It supersedes IAS 24 Related party disclosures, issued in 2003. IAS 24 (Revised) is mandatory for periods beginning on or after 1 January
2011. Earlier application, in whole or in part, is permitted. The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The Group will apply the revised standard from 1 January 2011. When the revised standard is applied, the Group will need to disclose any transactions with its associates. Initial estimates indicate that the standard will not have a significant impact on the Group.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010136
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.26 New accounting standards and International Financial Reporting Interpretation Committee (IFRIC) interpretations (continued) (c) Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by
the Group (continued) IAS 32 (Amendment) Classification of rights issues issued in October 2009 The amendment applies to annual periods beginning on or after 1 February 2010. Earlier application is permitted. The amendment addresses the
accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities. The amendment applies retrospectively in accordance with IAS 8 Accounting policies, changes in accounting estimates and errors. The Group will apply the amended standard from 1 January 2011, but is not expected to have a material impact on the Group’s financial statements.
IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective 1 July 2010) When an entity renegotiates the terms of its debt with the result that the liability is extinguished through the debtor issuing its own equity
instruments to the creditor, a gain or loss is recognised in the profit and loss account based on the fair value of the equity instruments compared to the carrying amount of the debt.
IFRIC 14 IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective 1 January 2011) The amendments correct an unintended consequence of IFRIC 14 IAS 19 – The limit on a defined benefit asset, minimum funding requirements and
their interaction. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendments correct this. The amendments are effective for annual periods beginning 1 January 2011. Earlier application is permitted. The amendments should be applied retrospectively to the earliest comparative period presented. The Group will apply these amendments for the financial reporting period commencing on 1 January 2011. It is not expected to have any impact on the Group’s financial statements.
2.27 Determination of fair values A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and
liabilities. Fair value has been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
Notes to the Group financial statements continued for the year ended 31 December 2010
137MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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(a) Property, plant and equipment The fair value of property, plant and equipment recognised as a result of a business combination is based on depreciated replacement cost.
(b) Intangible assets The fair value of customer relationships acquired in a business combination is determined using the multi-period excess earnings method, whereby the
subject asset is valued after deducting a fair return on all other assets that are part of creating the related cash flows.
The fair value of patents and trademarks acquired in a business combination is based on the discounted estimated royalty payments that have been avoided as a result of the patent or trademark being owned.
The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
(c) Investments in equity and debt securities The fair value of available-for-sale financial assets is determined by reference to their quoted closing bid price at the reporting date. If the market for a
financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same and discounted cash flow analysis.
(d) Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the
reporting date.
(e) Derivatives The fair value of forward foreign exchange contracts is based on their listed market price.
(f) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted
at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.
(g) Share-based payment transactions The fair value is measured using the stochastic model. The expected life used in the model has been adjusted, based on management’s best estimate,
for the effects of non-transferability, exercise restrictions and behavioural considerations. Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value.
(h) Long-term receivables The fair value of long-term receivables is determined using a discounted cash flow methods using market related rates at 31 December.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010138
Notes to the Group financial statements continued for the year ended 31 December 2010
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (continued)2.28 Critical accounting estimates and assumptions The Group makes estimates and assumptions concerning the future. Actual results may differ from these estimates. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below: Estimated impairment of goodwill The Group tests goodwill for impairment on an annual basis, in accordance with the accounting policy measured in note 2.10. The recoverable
amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates and the input factors most sensitive to change have been disclosed in note 11. The Group has performed a sensitivity analysis by varying these input factors by a reasonably possible margin and assessing whether the change in input factors results in any of the goodwill allocated to appropriate cash-generating units being impaired. Based on the analysis performed, there are no indications that an impairment of goodwill related to any of its cash-generating units that have been tested is required at reporting date.
Connection incentives and subscriber acquisition costs Connection incentives paid to service providers are currently expensed by the Group in the period incurred. Service providers utilise the incentives
received from the Group to fund a variety of administrative costs and/or to provide incentives to maintain/sign up customers on behalf of the Group, at their own discretion. The portion of the incentive used by the respective service providers as an incentive to retain/obtain existing/new subscribers on behalf of the Group, should be capitalised only to the extent that it is reliably measurable (prepaid discount). In accordance with the framework under IFRS, the Group has resolved not to capitalise these fees due to the portion of incentives utilised to acquire/retain subscribers on behalf of the Group by the respective independent service providers not being reliably measurable.
In accordance with the recognition criteria in terms of IAS 38 Intangible Assets, the Group has also resolved not to capitalise commissions paid to dealers, utilised to acquire new subscribers, as intangible assets (subscriber acquisition cost), due to the portion utilised to acquire subscribers on behalf of the Group not being reliably measurable.
Interconnect revenue recognition Due to the receipt of interconnect revenue in certain operations not being certain at transaction date, the Group has resolved only to recognise
interconnect revenue relating to these operations as the cash is received.
2.29 Critical judgements in applying the entity’s accounting policies Income taxes The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income
taxes. There are many calculations and transactions for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax issues based on estimates of whether additional taxes will be due. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
139MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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3. OPERATING SEGMENTSThe Group’s principal activities include, the provision of network IT services; local, national and international communications services; broadband and internet products and services; and converged fixed/mobile products and services.
The Group is organised into three regions which is regularly reported to the chief operating decision maker, ie Group executive committee.
South and East Africa
Rm
West and Central
AfricaRm
Middle East and North
AfricaRm
Head officecompanies
RmConsolidated
Rm
December 2010
Revenue
External sales 42 502 49 887 22 008 287 114 684
Total revenue 42 502 49 887 22 008 287 114 684
EBITDA 14 556 27 683 7 393 (2 095) 47 537
Depreciation of property, plant and equipment (3 700) (7 226) (2 305) (17) (13 248)
Amortisation of intangible assets (534) (859) (704) (23) (2 120)
Finance income 236 500 770 571 2 077
Finance costs (359) (1 948) (333) (3 531) (6 171)
Impairment of goodwill — (32) — — (32)
Share of results of associates after tax (1) — 53 — 52
Profit before tax 10 198 18 118 4 874 (5 095) 28 095
Income tax expense (2 687) (6 115) (1 134) (1 332) (11 268)
Profit after tax 7 511 12 003 3 740 (6 427) 16 827
Segment assets
Non-current assets 21 654 30 100 6 837 41 136 99 727
Current assets 11 850 14 174 13 280 15 755 55 059
Total assets 33 504 44 274 20 117 56 891 154 786
Segment liabilities
Non-current liabilities 12 027 16 850 3 586 1 532 33 995
Current liabilities 12 282 15 363 14 739 4 333 46 717
Total liabilities 24 309 32 213 18 325 5 865 80 712
Capital expenditure* 5 421 9 919 3 402 724 19 466
Average number of employees for the period for each of the Group’s principal segments were as follows 6 579 6 341 4 673 227 17 820
* Capital expenditure comprises additions to property, plant and equipment and additions to software.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010140
3. OPERATING SEGMENTS (continued)
South and East Africa
Rm
West and Central
AfricaRm
Middle East and North
AfricaRm
Head officecompanies
RmConsolidated
Rm
December 2009
Revenue
External sales 39 669 50 543 21 525 210 111 947
Total revenue 39 669 50 543 21 525 210 111 947
EBITDA 12 701 27 029 5 782 551 46 063
Depreciation of property, plant and equipment (2 744) (6 692) (2 362) (9) (11 807)
Amortisation of intangible assets (508) (1 375) (762) (23) (2 668)
Finance income 265 1 490 345 4 320 6 420
Finance costs (333) (3 188) (431) (8 278) (12 230)
Share of results of associates after tax (18) — 13 — (5)
Profit before tax 9 363 17 264 2 585 (3 439) 25 773
Income tax expense (2 488) (5 238) (486) (400) (8 612)
Profit after tax 6 875 12 026 2 099 (3 839) 17 161
Segment assets
Non-current assets 22 178 36 293 15 164 36 578 110 213
Current assets 11 977 11 338 10 168 12 541 46 024
Total assets 34 155 47 631 25 332 49 119 156 237
Segment liabilities
Non-current liabilities 5 741 14 487 7 960 238 28 426
Current liabilities 19 310 20 074 14 899 662 54 945
Total liabilities 25 051 34 561 22 859 900 83 371
Capital expenditure* 8 645 16 518 5 785 300 31 248
Average number of employees for the period for each of the Group’s principal segments were as follows 6 547 6 109 4 642 211 17 509
* Capital expenditure comprises additions to property, plant and equipment and additions to software.
Notes to the Group financial statements continued for the year ended 31 December 2010
141MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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December 2010
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December 2009
Rm
4. REVENUE
Airtime and subscription 78 400 76 814
Data 6 206 3 329
SMS 6 570 5 437
Interconnect 17 012 19 516
Mobile telephones and accessories 3 678 3 279
Other 2 818 3 572
114 684 111 947
5. OPERATING PROFIT
The following items have been included in arriving at operating profit
Auditors’ remuneration (96) (99)
– Audit fees (72) (60)
– Fees for other services (18) (27)
– Expenses (6) (12)
Directors’ emolument (60) (42)
– Services as director (46) (31)
– Directors’ fees (14) (11)
Operating lease rental (1 264) (668)
– Property (1 044) (465)
– Equipment and vehicles (220) (203)
Claim settlement — 354
Loss on disposal of property, plant and equipment (note 25) (146) (132)
Reversal of impairment/(impairment) charge on property, plant and equipment (note 10) 231 (167)
Impairment charge on other intangible assets (note 11) (32) (14)
Writedown of inventories (note 15) 145 (67)
Impairment on trade receivables (note 16) (224) (283)
MTN Group Limited Integrated Business Report for the year ended 31 December 2010142
December 2010
Rm
December 2009
Rm
5. OPERATING PROFIT (continued)
Employee benefit (5 961) (5 843)
– Wages and salaries (4 683) (4 793)
– Pension costs (241) (218)
– Share options granted to directors and employees (87) (83)
– Training (246) (232)
– Employee share option scheme (171) —
– Other (533) (517)
Fees paid for professional and consulting services (2 802) (3 077)
Average number of employees 17 820 17 509
6. FINANCE INCOME AND FINANCE COSTS
Interest income on loans and receivables 244 855
Interest income on bank deposits 916 1 488
Foreign exchange gains 468 2 555
Functional currency gains — 283
Put options (note 8) 449 1 239
Finance income 2 077 6 420
Interest expense on financial liabilities measured at amortised cost (3 085) (4 544)
Foreign exchange losses (1 392) (3 661)
Functional currency losses (1 223) (3 487)
Put options (note 8) (471) (538)
Finance costs (6 171) (12 230)
Net finance costs recognised in profit or loss (4 094) (5 810)
Notes to the Group financial statements continued for the year ended 31 December 2010
143MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Rm
December 2009
Rm
7. INCOME TAX EXPENSE
Analysis of tax expense for the year
Normal tax (7 834) (6 425)
– Current year (7 766) (6 480)
– Adjustment in respect of the prior year (68) 55
Deferred tax (note 14) (1 984) (992)
– Current year (2 045) (974)
– Overprovision in respect of prior year 61 (18)
Capital gains tax (28) —
Foreign income and withholding taxes* (786) (856)
Secondary tax on companies (636) (339)
(11 268) (8 612)
Secondary tax on companies
STC relating to post year end dividends (658) (353)
* Taxation for foreign jurisdictions is calculated at the rates that have been enacted or substantively enacted in the respective jurisdictions.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010144
7. INCOME TAX EXPENSE (continued)The table below explains the differences between the expected tax expense on continuing operations, at the South African statutory rate of 28% and the Group’s total tax expense for each year.
The income tax charge for the year is reconciled to the effective rate of taxation in South Africa as followsDecember
2010%
December 2009
%
Tax rate reconciliation
Tax at standard rate 28,00 28,00
Expenses not allowed 2,60 1,80
Zakhele share costs – disallowed 2,96 —
Effect of different tax rates in other countries (0,61) 0,10
Nigeria investment allowance relief (0,48) (1,10)
Income not subject to tax (0,47) (0,20)
Nigeria put option revaluation (0,01) (0,80)
Reversal of underprovision – deferred tax 0,48 —
Withholding taxes 2,80 3,10
Effect of STC 2,26 1,30
Capital gains tax 0,10 —
Other 2,47 1,20
40,10 33,40
The Group holds investments in Afghanistan, Belgium, Benin, Botswana, Cameroon, Congo-Brazzaville, Côte d’Ivoire, Cyprus, Ghana, Guinea-Bissau, Guinea-Conakry, Iran, Kenya, Liberia, Monaco, Namibia, Nigeria, Rwanda, Sudan, Swaziland, Syria, Uganda, Yemen and Zambia. Taxation for foreign jurisdictions is calculated at the rates that have been enacted or substantively enacted in the respective jurisdictions.
8. EARNINGS PER ORDINARY SHAREThe calculation of basic earnings per ordinary share is based on net profit for the year of R14 300 million (December 2009: R14 650 million), and the weighted average number of ordinary shares in issue (excluding treasury shares) is 1 842 209 650 (December 2009: 1 851 260 334).
The calculation of basic and adjusted headline earnings per ordinary share is calculated on basic headline earnings of R14 011 million (December 2009: R14 869 million) and adjusted headline earnings of R13 761 million (December 2009: R13 963 million) respectively, and the weighted average number of ordinary shares in issue (excluding treasury shares) is 1 842 209 650 (December 2009: 1 851 260 334).
The calculation of diluted, basic headline and adjusted headline earnings per ordinary share is based on the respective earnings as indicated above, and the weighted average number of fully diluted ordinary shares in issue (excluding treasury shares) is 1 851 962 720 (December 2009: 1 860 307 308) during the year.
Notes to the Group financial statements continued for the year ended 31 December 2010
145MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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8. EARNINGS PER ORDINARY SHARE (continued)Reconciliation between net profit attributable to the equity holders of the Company and headline earnings
December 2010 December 2009Rm
GrossRmNet
RmGross
RmNet
Net profit for the period 14 300 14 650
Adjusted for:
Loss on disposal of property, plant and equipment* 146 126 132 124
Reversal/(impairment) of property, plant and equipment* (231) (189) 167 134
Profit on disposal of investments (258) (258) (53) (53)
Other impairment charges on intangible assets 32 32 14 14
Basic headline earnings 14 011 14 869
Adjusted for:
Reversal of put options in respect of subsidiaries
– Fair value adjustment (208) (172) (537) (537)
– Finance costs 471 471 537 537
– Foreign exchange (gain)/loss (241) (277) (701) (701)
– Non-controlling shareholders’ share of profits (272) (272) (205) (205)
Adjusted headline earnings 13 761 13 963
Earnings per ordinary share (cents)
– Basic 776,2 791,4
– Basic headline 760,6 803,2
– Adjusted headline 747,0 754,3
Diluted earnings per share (cents)
– Basic 764,5 781,5
– Basic headline 748,9 793,2
– Adjusted headline 735,4 744,6
*Amounts are measured after taking into account non-controlling interests.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010146
8. EARNINGS PER ORDINARY SHARE (continued)December
2010‘000
December 2009‘000
Weighted average number of shares 1 842 210 1 851 260
Adjusted for
– Share options 820 1 389
– Share options – Zakhele 2 111 —
– Share appreciation rights 6 822 7 658
Weighted average number of shares for diluted earnings per share calculation 1 851 963 1 860 307
Explanation of adjusted headline earningsImpact of put optionsIFRS requires the Group to account for a written put option held by non-controlling shareholders of the Group’s subsidiaries, which provides them with the right to require the subsidiary to acquire their shareholding at fair value. Prior to the implementation of IFRS, the shareholding was treated as a non-controlling shareholder in the subsidiary as all risks and rewards associated with these shares, including dividends, accrued to the non-controlling shareholder. IAS 32 requires that in the circumstances described in the previous paragraph, (a) the present value of the future redemption amount be reclassified from equity to financial liabilities and that the financial liability so reclassified subsequently be measured in accordance with IAS 39; (b) in accordance with IAS 39, all subsequent changes in the fair value of the liability together with the related interest charges arising from present valuing the future liability, be recognised in profit or loss and (c) the non-controlling shareholder holding the put option no longer be regarded as a non-controlling shareholder, but rather as a creditor from the date of receiving the put option.
Although the Group has complied with the requirements of IAS 32 and IAS 39 as outlined above, the board of directors has reservations about the appropriateness of this treatment in view of the fact that (a) the recording of a liability for the present value of the future strike price of the written put option results in the recording of a liability that is inconsistent with the framework, as there is no present obligation for the future strike price, (b) the shares considered to be subject to the contracts that are outstanding, have the same rights as any other shares and should therefore be accounted for as a derivative rather than creating an exception to the accounting required under IAS 39.
9. DIVIDEND PER SHAREThe dividends paid during the December 2010 and 2009 financial years amounted to R6 313 million and R3 381 million respectively. A dividend in respect of the period ended 31 December 2010 of R3,49 per share, was approved at the quarterly board meeting on 8 March 2011.
December 2010 December 2009Cents
per share RmCents
per share Rm
Dividends paid
Final dividend paid in respect of the prior year 192 3 534 181 3 381
Interim dividend paid in respect of the current year 151 2 779 — —
6 313 3 381
Dividends declared
Approved after the reporting date and not recognised as a liability 349 6 577 192 3 534
Notes to the Group financial statements continued for the year ended 31 December 2010
147MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Land and buildings*
Rm
Leasehold improvements
Rm
Network infrastructure
Rm
Information systems, furniture
and office equipment
Rm
Capital work-in-
progress/other
RmVehicles**
RmTotal
Rm
10. PROPERTY, PLANT AND EQUIPMENT
Cost
Balance at 1 January 2009 4 067 897 83 438 6 149 6 887 944 102 382
Acquisitions through business combinations — 7 157 106 — 4 274
Additions 686 245 16 309 1 797 10 847 236 30 120
Other movements 5 (7) 5 922 (3) (6 223) 2 (304)
Reallocations (2) 115 1 204 152 (1 722) 1 (252)
Disposals (144) (8) (5 518) (1 131) (169) (64) (7 034)
Effect of movements in exchange rates (696) (135) (17 688) (1 085) (1 815) (236) (21 655)
Balance at 31 December 2009 3 916 1 114 83 824 5 985 7 805 887 103 531
Balance at 1 January 2010 3 916 1 114 83 824 5 985 7 805 887 103 531
Additions 644 366 10 950 1 358 4 818 150 18 286
Other movements (63) 160 (1 936) (619) 502 2 (1 954)
Reallocations 680 46 3 872 446 (5 293) — (249)
Disposals — (16) (1 748) (76) (138) (47) (2 025)
Effect of movements in exchange rates (331) (134) (10 120) (658) (884) (132) (12 259)
Balance at 31 December 2010 4 846 1 536 84 842 6 436 6 810 860 105 330
* Included in land and buildings are leased assets with a carrying amount of R247 million (December 2009: R264 million). ** Included in vehicles are leased assets with a carrying amount of R73 million (December 2009: R81 million).
MTN Group Limited Integrated Business Report for the year ended 31 December 2010148
Land and buildings
Rm
Leasehold improvements
Rm
Network infrastructure
Rm
Information systems, furniture
and office equipment
Rm
Capital work-in-
progress/other
RmVehicles
RmTotal
Rm
10. PROPERTY, PLANT AND EQUIPMENT (continued)
Accumulated depreciation and impairment losses
Balance at 1 January 2009 (551) (494) (33 065) (3 631) (89) (359) (38 189)
Depreciation for the year (179) (180) (10 229) (1 015) (20) (184) (11 807)
Impairment loss — — (165) (2) — — (167)
Acquisitions through business combinations (2) (1) (30) (131) — (4) (168)
Other movements 7 (19) 54 15 5 (2) 60
Disposals 142 4 4 874 1 008 — 50 6 078
Effect of movements in exchange rates 151 86 7 178 668 24 96 8 203
Balance at 31 December 2009 (432) (604) (31 383) (3 088) (80) (403) (35 990)
Balance at 31 December 2010 (432) (604) (31 383) (3 088) (80) (403) (35 990)
Depreciation for the year (242) (222) (11 498) (1 111) (14) (161) (13 248)
Reversal of impairment — — 231 — — — 231
Other movements 9 (37) 478 196 17 (1) 662
Disposals — 12 1 452 68 — 39 1 571
Effect of movements in exchange rates 60 72 4 209 383 9 72 4 805
Balance at 31 December 2010 (605) (779) (36 511) (3 552) (68) (454) (41 969)
Carrying amounts
At 1 January 2009 3 516 403 50 373 2 518 6 798 585 64 193
At 31 December 2009 3 484 510 52 441 2 897 7 725 484 67 541
At 1 January 2010 3 484 510 52 441 2 897 7 725 484 67 541
At 31 December 2010 4 241 757 48 331 2 884 6 742 406 63 361
Notes to the Group financial statements continued for the year ended 31 December 2010
149MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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10. PROPERTY, PLANT AND EQUIPMENT (continued)
10.1 Register of land and buildingsRegisters with details of land and buildings are available for inspection by members or their duly authorised representatives at the registered office of the Company and its respective subsidiaries.
10.2 Impairment lossMTN Nigeria reversed a portion of the previously recognised impairment loss amounting to R231 million (2009: Rnil). During the prior year, MTN Nigeria impaired its network infrastructure by R125 million, MTN Yemen by R35 million with the remaining balance contributed by various other MTN operations.
10.3 Lease property, plant and equipmentThe Group leases various premises and sites which have varying terms, escalation clauses and renewal rights.
10.4 Capital work-in-progressThere are various capital work-in-progress projects under way within the Group. At year end, the main contributors to these project balances were: MTN South Africa R1,8 billion (2009: R2 billion), MTN Ghana R1 billion (2009: R2 billion), MTN Afghanistan R370 million (2009: Rnil), MTN Nigeria R369 million (2009: R737 million), MTN Côte d’Ivoire R149 million (2009: R606 million) and MTN Irancell R119 million (2009: R656 million).
10.5 Changes in estimatesThere were no significant changes in the depreciation method, useful life or residual values of any items of property, plant and equipment during the current year.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010150
10. PROPERTY, PLANT AND EQUIPMENT (continued)
10.6 Encumbrances MTN Côte d’ Ivoire SABorrowings by MTN Côte d’ Ivoire are secured by a fixed charge over the Company’s land and buildings with a carrying amount R999 million (December 2009: R1 432 million).
MTN Uganda LimitedIn terms of the Inter-creditor Security Package, MTN Uganda Limited has provided a first ranking floating charge over all its present and future assets, excluding its licence. Its property, plant and equipment has a carrying amount of R2 081 million (December 2009: R3 220 million). This serves as security for syndicated loans made to MTN Uganda Limited by various banks and financial institutions.
MTN Sudan Company LimitedBorrowings by MTN Sudan are secured by certain categories of property, plant and equipment with a carrying amount of R332 million (December 2009: R92 million).
MTN Congo SABorrowings by MTN Congo are secured by certain categories of property, plant and equipment with a carrying amount of R232 million (December 2009: Rnil).
MTN Zambia LimitedBorrowings by MTN Zambia Limited were secured by certain categories of property, plant and equipment with a carrying amount of R527 million (December 2009: R973 million).
MTN (Proprietary) LimitedBorrowings by MTN (Proprietary) Limited were secured by certain categories of property, plant and equipment with a carrying amount in 2009: R264 million.
Notes to the Group financial statements continued for the year ended 31 December 2010
151MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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GoodwillRm
LicencesRm
Customer relationships
RmSoftware
Rm
Other intangible
assetsRm
TotalRm
11. INTANGIBLE ASSETS
Balance at 1 January 2009 31 914 13 761 4 625 3 822 226 54 348
Additions — 697 — 1 444 87 2 228
Arising from business combinations 1 750 — 284 — — 2 034
Reallocations — — — 192 60 252
Effect of movements in exchange rates (8 908) (2 823) (192) (634) 53 (12 504)
Balance at 31 December 2009 24 756 11 635 4 717 4 824 426 46 358
Balance at 1 January 2010 24 756 11 635 4 717 4 824 426 46 358
Additions — 105 60 1 170 8 1 343
Disposals — — — (142) (1) (143)
Reallocations — — — 245 4 249
Impairment loss (32) — — — — (32)
Other movements (50) — 32 8 10 —
Effect of movements in exchange rates (3 877) (1 445) (181) (481) (16) (6 000)
Balance at 31 December 2010 20 797 10 295 4 628 5 624 431 41 775
MTN Group Limited Integrated Business Report for the year ended 31 December 2010152
GoodwillRm
LicencesRm
Customer relationships
RmSoftware
Rm
Other intangible
assetsRm
TotalRm
11. INTANGIBLE ASSETS (continued)
Amortisation and impairment losses
Balance at 1 January 2009 — (3 764) (3 079) (1 570) (149) (8 562)
Amortisation for the year — (903) (1 070) (569) (126) (2 668)
Additions — 3 — 131 (62) 72
Impairment loss — — — — (14) (14)
Effect of movements in exchange rates — 386 255 194 43 878
Balance at 31 December 2009 — (4 278) (3 894) (1 814) (308) (10 294)
Balance at 1 January 2010 — (4 278) (3 894) (1 814) (308) (10 294)
Amortisation for the year — (830) (337) (798) (155) (2 120)
Disposals — — — 71 — 71
Other movements — — (63) 6 57 —
Effect of movements in exchange rates — 449 135 243 7 834
Balance at 31 December 2010 — (4 659) (4 159) (2 292) (399) (11 509)
Carrying amounts
At 1 January 2009 31 914 9 997 1 546 2 252 77 45 786
At 31 December 2009 24 756 7 357 823 3 010 118 36 064
At 1 January 2010 24 756 7 357 823 3 010 118 36 064
At 31 December 2010 20 797 5 636 469 3 332 32 30 266
Notes to the Group financial statements continued for the year ended 31 December 2010
153MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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11. INTANGIBLE ASSETS (continued)
Impairment testing of cash-generating units containing goodwillGoodwill is allocated to the Group’s cash-generating units (CGU) identified according to country of operation.
A summary of the goodwill allocation is presented belowDecember
2010Rm
December 2009
Rm
MTN Côte d’Ivoire SA 1 313 2 023
Scancom Limited (Ghana) 7 353 8 693
MTN Sudan Company Limited 2 759 3 527
MTN Yemen 1 647 1 949
MTN Afghanistan Limited 1 040 1 113
MTN Uganda Limited 465 631
MTN Congo SA 546 653
MTN Syria (JSE) 300 355
MTN Cyprus Limited 456 786
Spacetel Benin SA 721 888
Areeba Guinea SA (Conakry) 446 669
Others 3 751 3 469
20 797 24 756
Goodwill is tested annually for impairment. There was no impairment of any of the CGU’s above to which goodwill had been allocated, apart from the impairment charge in respect of the Cameroon CGU. The impairment charge arose in the Cameroon CGU amounting to R32 million (2009: Rnil) during the year in respect of its ISP business included in one of its subsidiaries, where forecasts were revised downwards in light of the difficult economic trading conditions.
The recoverable amount of a CGU was determined based on value-in-use calculations. The calculations mainly used cash flow projections based on financial budgets approved by management covering a five to eleven-year period. Cash flows beyond the above period were extrapolated using the estimated growth rates measured below. The following key assumptions were used for the value-in-use calculations:
Growth rate: We used a steady growth rate to extrapolate revenues beyond the budget period cash flows. The growth rate was consistent with publicly available information relating to long-term average growth rates for each of the markets in which the respective CGU operated. The average growth rates used ranged from 1% to 4,5% (2009: 2% to 4%).
Discount rate: Discount rates range from 9,2% to 15,9% (2009: 7,3% to 17,9%). Discount rates used reflect specific risks relating to the relevant CGU.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010154
11. INTANGIBLE ASSETS (continued)
Licence agreements TypeGranted/renewed Term
Renewable term
Fee currency
South and East Africa
ZAR
Mobile Telephone Networks (Proprietary) Limited ECS licence* 15/01/2009 15 years Renewable on application using the prescribed format
for similar licence period
ECNS licence* 15/01/2009 20 years Renewable on application using the prescribed format
for similar licence period* During the year the three existing network licences, namely 900MHz; 1 800MHz and 3G, were converted into ECS and ECNS (reflected above). This conversion was
retrospectively effective from 15 January 2009.
MTN Uganda Limited 900MHz 15/04/1998 20 years 5 years USD 1 800MHz
MTN Rwandacell S.A.R.L 900MHz 17/03/2000 13 years 5 years USD 1 800MHz 1 900MHz Fixed line 30/06/2006 5 years 5 years
Mascom Wireless Botswana Limited 9001 800
13/06/2007 15 years Determined in renewal process
BWP
2 100
MTN Zambia Limited 1 800MHz 23/09/1995 15 years 5 years ZMK
Swazi MTN Limited 900MHz 28/11/2008 10 years 10 years SZL
1 800MHz
Notes to the Group financial statements continued for the year ended 31 December 2010
155MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Initial licence/Renewal fee Annual fees Further fees/obligations where applicable
— Not applicable Further obligations require a contribution of 1,5% of gross profit as defined by the Electronic Communications Act No 36 of 2005
100 million Not applicable Further obligations require a contribution of 1,5% of gross profit as defined by the Electronic Communications Act No 36 of 2005
5,8 million Spectrum fee of 1% of gross network revenue Not applicable
200 000 3% of network revenue as defined in the licence RWF1,2 million per MHz annually Spectrum fee of 50 000 Renewal fee of 500 000
350 000
— Licence operation of 1,1 million 3% of annual net turnover
— Licence system of 0,2 million
100 million 2,7 billion Monthly licence fees – 3% of airtime revenues
3,6 million Spectrum fee of 20 000 per channel used with a minimum of 600 000
Universal services obligation of 0,5% of net operating income
Licence fee of 5% of net operating income with a minimum of 6 million
MTN Group Limited Integrated Business Report for the year ended 31 December 2010156
11. INTANGIBLE ASSETS (continued)
Licence agreements TypeGranted/Renewed Term
Renewable term
Fee currency
West and Central AfricaMTN Nigeria Communications Limited 900MHz 09/02/2001 15 years 5 years USD
1 800MHz 3G Spectrum Licence 01/05/2007 15 years Dependent on the Nigerian
Communications Commission Unified Access Licence
(including internationalgateway)
01/09/2006 10 years 5 years NGN
International Submarine Cable Infrastructure
and Landing Station Licence (WACS)
01/01/2010 20 years 20 years USD
Scancom Limited (Ghana) 900MHz 02/12/2004 15 years 10 years USD 1 800MHz
3G 23/01/2009 15 years Provisional licence
WAC licence 17/02/2010 20 years Not applicable MTN Cameroon Limited 900MHz 15/02/2000 15 years 10 years CFA
MTN Côte d’Ivoire SA 900MHz 02/04/1996 20 years Determined inrenewal process
XOF
1 800MHz WiMax 2,5 – 3,5Ghz 31/07/2002 20 years
Spacetel Benin SA 900MHz 19/10/2007 10 years 5 years CFA
1 800MHz
Areeba Guinea SA 900MHz 31/08/2005 18 years Determined in renewal process
EUR
1 800MHz WiMax 04/06/2009 5 years GNF
MTN Congo SA 900MHz 15/10/1999 15 years 15 years XAF 1 800MHz 21/08/2002 15 years 15 years
International gateway 05/02/2002 15 years 15 years Optical fibre 02/04/2010 15 years 15 years
Notes to the Group financial statements continued for the year ended 31 December 2010
157MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Initial licence/Renewal fee Annual fees Further fees/obligations where applicable
285 million Annual operating levy 2,5% of gross revenue Not applicable
150 million Annual operating levy 2,5% of net revenue Not applicable
114,6 million Annual operating levy 2,5% of net revenue Not applicable
220,500 (thousand) Annual operating levy 2,5% of net revenue Not applicable
22,5 million Annual fee of 1% of revenue Not applicable
28 million Annual fee of 1% of revenue Not applicable
1,025 million Annual fee of 1% of revenue Not applicable 44 billion Regulatory management fee of 1,06% of network revenue Spectrum fee – 200 000 accrued annually based on a temporary
agreement with the regulator Telecoms development fund of 2% of network revenue
40 billion No annual fees specified in the licence agreement. Not applicable
Not applicable 10 million No annual fees specified in the licence agreement Not applicable 30 billion 15 per minute for each international interconnect call
terminated in Benin Regulations Authority operations fee of 1% of revenue
Universal access fee of 1% of revenue 2 franc on all national outgoing minute including on net Regional development fee of 0,5% of revenue
Training and research fee of 0,5% of revenue 30 million GNF25 billion (fully paid as at 31/12/2010) GNF16,33 billion
3 billion Not applicable GNF700 million 365 million 3% of local outgoing traffic Frequency management fee of 265 million 150 million 3% of local outgoing traffic Frequency usage fee of 708 million 100 million 6% international outgoing traffic Included in licence above 505 million Not applicable Not applicable
MTN Group Limited Integrated Business Report for the year ended 31 December 2010158
11. INTANGIBLE ASSETS (continued)
Licence agreements TypeGranted/Renewed Term
Renewable term
Fee currency
West and Central Africa (continued)Lonestar Communications Corporation LLC (Liberia)
900MHz 24/03/2009 15 years Determined in renewal process
USD
1 800MHz WiMax 24/03/2009 15 years
Spacetel Guinea-Bissau SA 900MHz 01/03/2004 10 years Determined in renewal process
EUR
1 800MHz
Middle East and North AfricaIrancell Telecommunication Company Services 900MHz 27/11/2006 15 years Two periods of five
years each
EUR
1 800MHz WiMAX 28/02/2009 6 years 5 years
MTN Syria SA 900MHz 29/06/2002 15 years 3 years at discretion of Syrian licensing authority
USD
1 800MHz 22/03/2007 10,25 years 3G 29/04/2009 8,16 years SYP ISP 31/05/2009 3 years SYP
MTN Sudan Company Limited 900MHz 25/10/2003 20 years Determined in renewal process
EUR
1 800MHz 3G
MTN Afghanistan Limited 900MHz 15/10/2005 15 years 10 years USD 1 800MHz
MTN Yemen 900MHz 31/07/2000 15 years Determined in renewal process
USD
1 800MHz 17/02/2008 MTN Cyprus Limited 900MHz 01/12/2003 20 years Determined in
renewal process EUR
1 800MHz 3G
Notes to the Group financial statements continued for the year ended 31 December 2010
159MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Initial licence/Renewal fee Annual fees Further fees/obligations where applicable
15 million 0,7 million Not applicable
5 million 0,6 million Not applicable 2,2 million XOF 160 million per base station Annual microwave links fee of XOF 49 million
XOF 0,2 million per base station
300 million Regulatory fee of 0,25% of revenue of preceding contractual year Annual fee in total not exceeding 5% of revenue of the previous contractual year
Universal service contribution fee of 3% preceding contractual year and other fixed fees
Revenue share cost of 28,1% of revenue in each contractual year, with a minimum guaranteed amount based upon 80% of 28,1% of the revenue amount included in the business plan, subject to certain conditions being met, on an annual basis
50,7 million Numbering fee Dedicated frequency fee Not applicable
20 million Frequency protection fee of 50 000 or SP2,5 million per 1 MHz for transmission and reception
Revenue share costs of 30% of revenue for the first three years, 40% for next three years and 50% thereafter. A 60% revenue share applicable if the licence term is renewed
15 million 250 million 1,5 million
150 million 0,5% of revenue Not applicable
Not applicable Not applicable Not applicable Not applicable
40 million 4,5% of revenue AFN 200 000 per duplex 200KHz
10 million 0,5 million Not applicable
1 million 1,2 million Not applicable 21,8 million No annual fees specified in the licence agreement Not applicable
Not applicable Not applicable
MTN Group Limited Integrated Business Report for the year ended 31 December 2010160
12. INVESTMENT IN ASSOCIATESThe Group had the following effective percentage interests in associates:
Effective % interest in issued ordinary share capital
Associate Principal activity Country of incorporationDecember
2010December
2009
Number Portability (Proprietary) Limited Porting South Africa 20 33
Leaf Wireless (Proprietary) Limited Cellular dealership South Africa 44 40
Belgacom International Carrier Services SA Telecommunications Belgium 20 20
December 2010
Rm
December 2009
Rm
Balance at beginning of year 1 462 60
Additions — 1 508
Movements — (38)
Share of results after tax 52 (5)
Effect of movements in exchange rates (212) (63)
Balance at end of year 1 302 1 462
Share of results after tax comprises
Share of results of associates after tax 133 5
Unwind of deferred tax on customer relationships – BICS 42 —
Amortisation of customer relationships – BICS (123) —
52 5
Unless otherwise stated, the Group’s associates’ country of incorporation is also their principal place of operation.
In respect of the BICS acquisition that took place in 2009, the Group has concluded the PPA and the following represents a breakdown of the investment attributable to the associate
Customer relationships 454 627
Deferred tax (156) (213)
Goodwill 838 934
Net assets at acquisition 154 111
1 290 1 459
Notes to the Group financial statements continued for the year ended 31 December 2010
161MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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12. INVESTMENT IN ASSOCIATES (continued)
The Group’s share of the results of its associates, which are unlisted, and its aggregated assets (including goodwill) and liabilities, are as follows:
Summary financial information
Effective interest
Rm
Number Portability
RmLeaf Wireless
Rm
Belgacom International
Carrier Services
Rm
December 2010
Revenue 3 229 19 240 15 591
Share of results after tax 52 (2) (4) 670
Total assets 1 386 48 41 6 790
Total liabilities (947) (1) (44) (4 635)
Attributable net asset value 439 47 (3) 2 155
December 2009
Revenue 399 14 404 1 170
Share of results after tax (5) * (45) 65
Total assets 1 706 28 93 8 297
Total liabilities (1 233) (1) (94) (5 979)
Attributable net asset value 472 27 (1) 2 318
There are no significant contingent liabilities relating to the Group’s interests in these associates.
* Amounts less than R1 million.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010162
December 2010
Rm
December 2009
Rm
13. LOANS AND OTHER NON-CURRENT RECEIVABLES
Loan to Iran Electronic Development Company* 422 461
Loan to Irancell Telecommunication Company Services* 3 316 4 343
Non-current term advances 2 089 2 278
Non-current prepayments 22 16
5 849 7 098
Less: Current portion (2 458) (3 269)
– Loan to Iran Electronic Development Company* (422) (461)
– Loan to Irancell Telecommunication Company Services* (2 036) (2 808)
3 391 3 829
* The loans to Iran Electronic Development Company and to Irancell Telecommunication Company Services comprises the following four loans:Loan 1: USD64 million (December 2009: USD62 million) attracting interest at LIBOR + 4% per annum (effective rate of 6%) (December 2009: effective rate of 8,48%) which will be capitalised against the loan. The loan has been advanced from Irancell Telecommunication Company Services to Iran Electronic Development Company.Loan 2: USD194 million (December 2009: USD248 million) will attract interest at LIBOR + 4% per annum (effective rate of 7%) (December 2009: effective rate of 8,4%) which will be capitalised against the loan. Loan 3: EUR95 million (December 2009: EUR103 million) will attract interest at EURIBOR + 4% which will be capitalised against the loan (effective rate of 7%) (December 2009: effective rate of 9%). Loan 4: EUR85 million (December 2009: EUR82 million) will attract interest at EURIBOR + 4% which will be capitalised against the loan (effective rate 10%) (December 2009: effective rate of 8,3%). The above loans and capitalised interest were in terms of the original shareholders’ loan agreement and repayable as follows:Loan 1: The loan and capitalised interest was payable by August 2009.Loan 2: The loan and capitalised interest was payable by November 2009.Loan 3: The loan and capitalised interest was payable by 31 May 2008.Loan 4: There were no fixed repayment terms.MTN Group management have renegotiated the repayment terms of these loans in the current year as follows:Loan 1: The loan and capitalised interest is payable in 2011.Loan 2: The loan and capitalised interest is payable in 2014.Loan 3: The loan and capitalised interest is payable in 2011.Loan 4: The loan and capitalised interest is payable in 2011.Loans 1, 3 and 4 have been classified as current receivables and Loan 2 has been classified as non-current receivables.
The remaining shareholder of MTN Irancell has provided its shares in the company as security for the above loans.
The recoverability of the loan was assessed at reporting date and was not found to be impaired.
The loans are registered with the organisation for Investments Economic and Technical Assistance of Iran (OIETAI) under the foreign investment licence obtained by the company and which is covered by the foreign Investment Promotion and Protection Act (FIPPA).
Notes to the Group financial statements continued for the year ended 31 December 2010
163MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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14. DEFERRED INCOME TAXES
1 January2009
Rm
Acquisitionthrough business
combinationsRm
Recognised in profit
or lossRm
Exchangedifferences
Rm
31 December2009
Rm
Recognisedin profit
or lossRm
Exchangedifferences
Rm
31 December2010
Rm
Deferred tax assetsProvisions and other temporary differences 389 — 262 199 850 113 103 1 066 Excess allowances over depreciation 56 — (6) 255 305 7 (63) 249 Accelerated depreciation 95 — — (95) — — — —Tax loss carried forward 99 — 82 (13) 168 55 (134) 89 Arising due to fair value adjustments on business combinations 25 — (44) 13 (6) (9) 18 3 Working capital allowance (7) — — 7 — — — —
657 — 294 366 1 317 166 (76) 1 407
Deferred tax liabilitiesAssessed losses 5 — (18) (34) (47) — — (47) Tax allowances over book depreciation (3 469) — (1 942) 483 (4 928) (2 563) 564 (6 927) Other temporary differences (688) (80) 383 (487) (872) 132 149 (591) Revaluations (1 218) — 39 779 (400) 48 63 (289) Working capital allowances 381 — 252 (52) 581 233 — 814
(4 989) (80) (1 286) 689 (5 666) (2 150) 776 (7 040) Net deferred income tax asset/(liability) (4 332) (80) (992) 1 055 (4 349) (1 984) 700 (5 633)
Deferred income tax assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through future taxable profits is probable.
December2010
Rm
December 2009
Rm
15. INVENTORIESFinished goods (handsets, SIM cards and accessories) – at cost 1 879 1 650 Consumable stores and maintenance spares – at cost 36 68 Less: Writedown to net realisable value (326) (196)
1 589 1 522
MTN Uganda have secured facilities through the pledge of their inventories, please refer to note 20.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010164
At beginning of period
RmAdditions
RmUtilised
Rm
Exchange differences
Rm
At end of period
Rm
15. INVENTORIES (continued)
December 2010
Movement in writedown (196) (145) 9 6 (326)
December 2009
Movement in writedown (162) (67) 22 11 (196)
A writedown of R145 million (December 2009: R67 million) was incurred in the current year. This amount is included in other operating expenses in profit or loss (Refer to note 5).
December2010
Rm
December 2009
Rm
16. TRADE AND OTHER RECEIVABLES
Trade receivables 10 364 10 990
Less: Allowance for impairment of trade receivables (1 571) (1 549)
Net trade receivables 8 793 9 441
Prepayments and other receivables* 2 069 3 888
Sundry debtors and advances** 2 186 2 921
Other 186 123
13 234 16 373
An impairment loss of R224 million (December 2009: R283 million) was incurred in the current year, and this amount is included in other operating expenses in profit or loss (refer to note 5).
MTN Uganda has secured facilities through the pledge of their trade and other receivables, please refer to note 20.
The Group’s exposure to credit and currency risk and impairment losses related to trade and other receivables are disclosed in note 47.
The carrying value of trade and other receivables approximates the fair value because of the short period to maturity. * Prepayments and other receivables include prepayment for BTS and other property leases.** Sundry debtors and advances include advances to suppliers and short-term loans.
Notes to the Group financial statements continued for the year ended 31 December 2010
165MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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December2010
Rm
December 2009
Rm
17. ASSETS CLASSIFIED AS HELD FOR SALE
Property, plant and equipment – Network assets 825 —
825 —
Scancom Limited (MTN Ghana) announced on 6 December 2010 that it has concluded a transaction with American Tower Company (ATC) which involves the sale of up to 1 876 of MTN Ghana’s existing BTS sites to TowerCo Ghana for an agreed purchase price of approximately USD428,3 million. 2% of the shareholding in TowerCo Ghana will be held by local non-controlling shareholders and the remaining 98% by TowerCo Ghana’s holding company. ATC will hold a 51% stake in TowerCo Ghana’s holding company, with the remaining 49% stake held by MTN Dubai Limited. MTN Ghana will be the anchor tenant, on commercial terms, on each of the towers being sold. The transaction is expected to close in 2011, subject to customary closing conditions.
Number of sharesDecember
2010December
2009
18. ORDINARY SHARES AND SHARE PREMIUM
Ordinary share capital
Authorised 2 500 000 000 2 500 000 000
Issued 1 884 529 317 1 840 536 491
On issue at beginning of year 1 840 536 491 1 868 010 304
Newshelf share buy-back — (243 500 011)
Shares issued – PIC — 213 866 898
Options exercised 528 062 2 159 300
MTN Zakhele transaction 43 445 564 —
On issue at end of year 1 884 510 117 1 840 536 491
Options – MTN Zakhele transaction* (29 994 952) —
On issue at end of year – excluding MTN Zakhele transaction 1 854 515 165 1 840 536 491 * Due to the call option over the NVF shares, these shares, although legally issued to MTN Zakhele, are not deemed to be issued in terms of IFRS and are shown as such in the share
capital reconciliation.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010166
Notes to the Group financial statements continued for the year ended 31 December 2010
December 2010
Rm
December 2009
Rm
18. ORDINARY SHARES AND SHARE PREMIUM (continued)
Share capital
Balance at beginning of year * *
Additions * *
Balance at end of year * *
Share premium
Balance at beginning of year 44 297 23 905
Newshelf share buy-back — 20 356
Options – MTN Zakhele transaction* 1 294 —
Options exercised 11 36
Balance at end of year 45 602 44 297
MTN Group share option scheme and share appreciation rights scheme The exercise of options and resulting share trades can be viewed under directors’ share dealings on page 102 of the directors’ report. All disclosure as required has been included in the directors’ report.
MTN concluded its broad-based economic empowerment transaction “MTN Zakhele” during October 2010. The transaction is designed to provide long term, sustainable benefits to all BEE participants and will run for a period of six years. Over 122 552 applicants subscribed for shares and were successful.
The total cost of this transaction was R2 973 million which was recognised as a once-off charge in the income statement for the year. This charge includes the once-off IFRS 2 Share-based payment transaction charges for the notional vendor finance of R1 382 million, the employee share option plan of R171 million and a donation of R1 294 million. Transaction costs amounted to R126 million.
The donation was used to subscribe for 12 045 412 shares at the price of R107,46. Through the notional vendor finance, MTN issued 29 994 952 shares (NVF shares) to MTN Zakhele at par value. MTN has a call option over these shares. The value of the call option is R1 382 million and was determined using the Monte Carlo valuation model. The significant inputs into the model were the market share price of MTN shares of R128,85 at the grant date, being 14 October 2010, volatility of 40,2%, dividend yield of 4,1% and expected option life of six years and an annual risk free rate of 7,08%.
167MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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December 2010
Rm
December 2009
Rm
19. RESERVES
Balance at beginning of year (15 276) 1 769
Purchase/sale of non-controlling interest 60 (43)
Transfer from retained earnings — 188
Share-based payment reserve 1 640 84
Cash flow hedging reserve 77 (191)
Other reserves 93 (116)
Foreign currency translation differences of foreign subsidiaries and joint ventures (9 318) (16 967)
Balance at end of year (22 724) (15 276)
Consisting of:
Contingency reserve (as required by insurance regulations)* 39 29
Statutory reserve (as required by Rwanda and Congo-Brazzaville legislation)** 235 168
Purchase/sale of non-controlling interest (10 690) (10 750)
Shareholders’ loan revaluation reserve (244) (244)
Cash flow hedging reserve — (77)
Share-based payment reserve 1 968 328
Other reserves (15) (31)
Foreign currency translation differences of foreign subsidiaries and joint ventures (14 017) (4 699)
(22 724) (15 276)
* A contingency reserve has been created in terms of the Short-term Insurance Act, 1988. Transfers to the contingency reserve are treated as an appropriation of income, and the balance of the reserve is disclosed in the statement of financial position as a non-distributable reserve, forming part of shareholders’ funds. On dissolution of the special purpose entities to which these reserves relate, they will become available for distribution.
** A statutory reserve has been created in terms of local legislation. Transfers to the statutory reserve are treated as an appropriation of income, and the balance of the reserve is disclosed in the statement of financial position as a non-distributable reserve, forming part of the shareholders’ funds.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010168
December 2010
Rm
December 2009
RmDenominated
currencyDescription of borrowing
20. BORROWINGS
Unsecured
South and East Africa 670 863
MTN Mobile Money SA 258 268
258 268 ZAR Term loan from JV partner
MTN Zambia Limited 155 215
155 215 ZMK Syndicated term loan facility
MTN Rwandcell S.A.R.L 221 346
158 217 USD Export credit guarantee backed term loan facility
63 129 RWF Syndicated term loan facility
Swazi MTN Limited 28 34
8 9 SZL Bilateral term loan facility
13 15 SZL Bilateral term loan facility
7 10 SZL Bilateral term loan facility
Satellite Data Networks Mauritius Proprietary Limited 8 —
8 — USD Long-term loan
West and Central Africa 11 868 13 753
MTN Côte d’Ivoire SA 297 286
— 21 XOF Bilateral short-term loan facility
— 4 XOF Bilateral short-term loan facility
— 81 XOF Bilateral short-term loan facility
— 16 XOF Bilateral short-term loan facility
111 164 XOF Long-term loan – Various
173 — XOF Various bilateral short-term loan facilities
13 — XOF Bilateral short-term loan facility
* Nominal interest rates are the interest rates on the loans (whether NACM, NACQ, NACS, NACA) as at 31 December 2010.** Effective interest rates are calculated as follows: interest paid in 2010/weighted average capital balance x number of days/365.
Notes to the Group financial statements continued for the year ended 31 December 2010
169MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Type of interest charged
Nominal* interest rate
%
Effective** interest rate
% Repayment details
No interest — — No set repayment term
Variable interest rate 7,00 9,00 Semi-annual. Final repayment – December 2012
Variable and fixed interest rate 2,76 2,76 Semi-annual. Final repayment – September 2014
Variable interest rate 15,00 15,00 Monthly. Final repayment – September 2014
Variable interest rate 8,00 13,00 Monthly. Final repayment – September 2012
Variable interest rate 9,00 13,00 Monthly. Final repayment – June 2013
Variable interest rate 9,00 12,00 Monthly. Final repayment – October 2013
Fixed interest rate 4,00 4,00 Capital – bullet payment
Fixed interest rate — — Loan repaid during the year
Fixed interest rate — — Loan repaid during the year
Fixed interest rate — — Loan repaid during the year
Fixed interest rate — — Loan repaid during the year
Fixed interest rate 8,25 8,28 Monthly. Final repayment – December 2014
Fixed interest rate 7,00 7,00 Monthly. Final repayment – March 2011
Fixed interest rate 7,50 7,50 Monthly. Final repayment – March 2011
MTN Group Limited Integrated Business Report for the year ended 31 December 2010170
December 2010
Rm
December 2009
RmDenominated
currencyDescription of borrowing
20. BORROWINGS (continued)
Unsecured (continued)
West and Central Africa (continued)
MTN Nigeria Communications Limited 10 331 12 008
8 920 3 157 NGN Syndicated term loan facility
1 242 3 717 USD Syndicated term loan facility
84 1 531 NGN Revolving credit facility
85 1 406 USD Syndicated term loan facility
— 2 197 USD Syndicated term loan facility
MTN Congo SA 190 293
190 293 XAF Syndicated term loan facility
MTN Cameroon Limited 404 605
404 492 XAF Syndicated term loan facility
— 48 XAF Bilateral term loan facility
— 65 XAF Bilateral term loan facility
Spacetel Benin SA 539 443
539 443 XOF Syndicated term loan facility
Lonestar Communications Corporation LLC (Liberia) 107 118
66 74 USD Bilateral term loan facility
41 44 USD Bilateral term loan facility
* Nominal interest rates are the interest rates on the loans (whether NACM, NACQ, NACS, NACA) as at 31 December 2010.** Effective interest rates are calculated as follows: interest paid in 2010/weighted average capital balance x number of days/365.
Notes to the Group financial statements continued for the year ended 31 December 2010
171MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Type of interest charged
Nominal* interest rate
%
Effective** interest rate
% Repayment details
Variable interest rate 12,00 12,00 Annual. Final repayment – December 2015
Variable interest rate 2,00 3,00 Final repayment – October 2012
Variable interest rate 1,00 1,00 Final repayment – October 2012
Variable interest rate 3,00 3,00 Final repayment – October 2012
Variable interest rate — — Loan repaid during the year
Fixed interest rate 8,25 8,80 Monthly. Final repayment – December 2013
Fixed interest rate 6,00 6,00 Semi-annual. Final repayment – May 2015
Fixed interest rate — — Loan repaid during the year
Fixed interest rate — — Loan repaid during the year
Fixed interest rate 8,00 9,00 Semi-annual. Final repayment – August 2014
Fixed interest rate 11,00 11,00 Tri-annual. Final repayment – June 2012
Variable interest rate 11,00 11,00 Semi-annual. Final repayment – August 2014
MTN Group Limited Integrated Business Report for the year ended 31 December 2010172
December 2010
Rm
December 2009
RmDenominated
currencyDescription of borrowing
20. BORROWINGS (continued)
Unsecured (continued)
Middle East and North Africa 840 740
Irancell Telecommunication Services Company (Proprietary) Limited
573 313
— 151 IRR Bilateral short-term facility
— 26 IRR Vendor finance facility
— 9 USD Vendor finance facility
301 — EUR Vendor finance facility
272 127 EUR Vendor finance facility
MTN Sudan Company Limited 23 107
23 107 EUR Bilateral term loan facility
MTN Cyprus Limited 244 320
— 47 EUR Syndicated term loan facility
2 3 EUR Bilateral term loan facility
5 1 EUR Bilateral term loan facility
232 269 EUR Bilateral term loan facility
5 — EUR Bilateral term loan facility
* Nominal interest rates are the interest rates on the loans (whether NACM, NACQ, NACS, NACA) as at 31 December 2010.** Effective interest rates are calculated as follows: interest paid in 2010/weighted average capital balance x number of days/365.
Notes to the Group financial statements continued for the year ended 31 December 2010
173MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Type of interest charged
Nominal* interest rate
%
Effective** interest rate
% Repayment details
Fixed interest rate — — Loan repaid during the year
Fixed interest rate — — Loan repaid during the year
Variable interest — — Loan repaid during the year
Variable interest 6,25 6,60 Final repayment – March 2012
Variable interest 5,25 5,71 Semi-annual. Final repayment – December 2012
Variable interest rate 4,00 4,00 Semi-annual. Final repayment – June 2011
Variable interest rate — — Loan repaid during the year
Variable interest rate 6,00 6,00 Quarterly. Final repayment – July 2011
Variable interest rate 6,00 6,00 Monthly. Final repayment – May 2015
Variable interest rate 3,00 5,20 Semi-annual. Final repayment – December 2020
Variable interest rate 3,25 5,20 Quarterly. Final repayment – March 2014
MTN Group Limited Integrated Business Report for the year ended 31 December 2010174
December 2010
Rm
December 2009
RmDenominated
currencyDescription of borrowing
20. BORROWINGS (continued)
Unsecured (continued)
Head office companies 19 560 17 478
MTN Holdings (Proprietary) Limited 18 799 16 480
1 230 2 763 USD Syndicated term loan facility
1 750 3 500 ZAR Syndicated term loan facility
6 000 3 917 ZAR Syndicated term loan facility
— 5 000 ZAR Domestic medium term note
1 300 1 300 ZAR Domestic medium term note
1 250 — ZAR Domestic medium term note
1 250 — ZAR Domestic medium term note
1 500 — ZAR Domestic medium term note
499 — ZAR Commercial paper
984 — ZAR Commercial paper
508 — ZAR Commercial paper
1 016 — ZAR Revolving credit facility
503 — ZAR General banking facility
504 — ZAR General banking facility
505 — ZAR General banking facility
MTN International (Mauritius) Limited 761 998
— 998 USD Bilateral short-term loan facility
761 — USD Bilateral short-term loan facility
Total unsecured borrowings 32 938 32 834
Notes to the Group financial statements continued for the year ended 31 December 2010
175MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Type of interest charged
Nominal* interest rate
%
Effective** interest rate
% Repayment details
Variable interest rate — 1,00 Semi-annual. Final repayment – July 2011
Variable interest rate — 7,00 Semi-annual. Final repayment – July 2011
Variable interest rate — 7,80 Final repayment – June 2013
Fixed interest rate — — Loan repaid during the year
Fixed interest rate 10,19 10,19 Maturity – July 2014
Fixed interest rate 9,36 9,36 Maturity – July 2015
Fixed interest rate 10,13 10,13 Maturity – July 2017
Fixed interest rate 7,80 7,80 Maturity – October 2013
No interest — 6,27 Maturity – January 2011
No interest — 7,00 Maturity – April 2011
Variable interest rate — 7,00 Maturity – July 2011
Variable interest rate — 7,04 Maturity – January 2011
Fixed interest rate — 5,90 Maturity – January 2011
Fixed interest rate — 6,10 Maturity – February 2011
Fixed interest rate — 7,00 Maturity – January 2011
Variable interest rate — — Loan repaid during the year
Variable interest rate 1,80 1,94 Final repayment – March 2011
MTN Group Limited Integrated Business Report for the year ended 31 December 2010176
December 2010
Rm
December 2009
RmDenominated
currencyDescription of borrowing
20. BORROWINGS (continued)
Secured
South and East African 991 1 270
MTN Uganda Limited 464 749
332 447 UGX Syndicated term loan facility
132 148 USD Syndicated term loan facility
— 154 UGX Revolving credit facility
MTN Zambia Limited 527 521
527 521 USD Vendor finance facility
West and Central Africa 1 046 1 323
MTN Côte d’Ivoire SA 999 1 323
876 1 131 XOF Syndicated term loan facility
123 192 XOF Bilateral term loan facility
MTN Congo SA 47
47 — XAF Term loan facility
Notes to the Group financial statements continued for the year ended 31 December 2010
177MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Type of interest charged
Nominal interest rate*
%
Effective interest rate**
% Repayment details Security
Variable interest rate 13,00 11,00 Quarterly. Final repayment – October 2014 Floating charge over current and future assets
Variable interest rate 4,00 5,00 Quarterly. Final repayment – October 2014 Floating charge over current and future assets
Variable interest rate — — Loan repaid during the year Floating charge over current and future assets
Variable interest rate 3,00 4,00 Semi-annual. Final repayment – June 2013 Pledge of specific network assets under a supply contract
Fixed interest rate 8,00 9,00 Semi-annual. Final repayment – March 2014 Pledge of assets
Variable interest rate 8,00 8,00 Quarterly. Final repayment – July 2014 Pledge of assets
Fixed interest rate 7,00 7,00 Monthly. Final repayment – January 2014 Pledge of property, plant and equipment
MTN Group Limited Integrated Business Report for the year ended 31 December 2010178
December 2010
Rm
December 2009
RmDenominated
currencyDescription of borrowing
20. BORROWINGS (continued)
Secured (continued)
Middle East and North Africa 313 63
MTN Sudan Company Limited 313 63
19 63 SDG Bank borrowings against purchase of land and buildings
41 — EUR Vendor finance facility
253 — USD Vendor finance facility
Head office companies — 74
MTN (Dubai) Limited — 74
— 74 USD Bilateral term loan facility
Total secured borrowings 2 350 2 730
Total unsecured borrowings 32 938 32 834
Bank overdraft 40 1 353
Total borrowings 35 328 36 917
Notes to the Group financial statements continued for the year ended 31 December 2010
179MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Type of interest charged
Nominal interest rate*
%
Effective interest rate**
% Repayment details Security
Fixed interest rate 12,00 13,70 Semi-annual. Final repayment – September 2011
Pledge of property
Variable interest rate 7,00 6,50 Quarterly. Final repayment – June 2020
Pledge of equipment
Fixed interest rate 10,00 10,20 Quarterly. Final repayment – December 2016 Pledge of equipment
Variable interest rate — — Loan repaid during the year Cash collateral
MTN Group Limited Integrated Business Report for the year ended 31 December 2010180
December 2010
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20. BORROWINGS (continued)
The maturity of the above loans and overdrafts is as follows:
Payable within one year or on demand 10 471 15 851
Current borrowings 10 431 14 498
Bank overdrafts 40 1 353
More than one year but not exceeding two years 4 019 4 847
More than two years but not exceeding five years 19 178 14 999
More than five years 1 660 1 220
35 328 36 917
Less: Amounts included within current liabilities (10 471) (15 851)
Amounts included in non-current liabilities 24 857 21 066
The fair values of all borrowings and bank overdrafts approximate their book values.
The carrying amounts of the Group’s borrowings are denominated in the following currencies:
South African rand 17 826 13 985
US dollar 4 418 7 045
Nigerian naira 9 089 9 811
Uganda shilling 332 601
Euro 881 554
Congo-Brazzaville Communaute Financière Africaine franc 237 293
Sudanese pound 20 63
Iranian rials — 177
Benin Communaute Financière Africaine franc 539 443
Cameroon Communaute Financière Africaine franc 404 605
Côte d’Ivoire Communaute Financière Africaine franc 1 296 1 609
Rwanda franc 63 129
Zambian kwacha 155 215
Swazi lilangeni 28 34
Other 40 1 353
35 328 36 917
Notes to the Group financial statements continued for the year ended 31 December 2010
181MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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20. BORROWINGS (continued)
The Group has the following undrawn facilities:
Floating rate 7 473 5 119
Fixed rate — 583
7 473 5 702
Further details of the Group’s finance lease commitments are provided in note 34 to the financial statements.
21. OTHER NON-CURRENT LIABILITIESObligations under a finance lease over one year 248 255
Other non-current provisions 591 357
Deferred gain on asset swop for investment in BICS 994 1 341
Other 342 14
2 175 1 967
Less: Current portion of deferred gain (note 23) (248) (273)
1 927 1 694
* The deferred gain arose on the contribution of various assets from MTN Dubai, MTN International Carrier Services and Uniglobe in exchange for the 20% investment in associate in Belgacom International Carrier Services (refer to note 12), this gain was deferred and is being amortised over a five-year period, which is the period of the commitment to use the international gateway of Belgacom SA.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010182
December 2010
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December 2009
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22. PUT OPTION LIABILITY
Put options in respect of subsidiaries 2 796 2 638Non-current portion 171 —Current portion 2 625 2 638
The put options in respect of subsidiaries arise from arrangements whereby certain of the non-controlling shareholders of MTN Nigeria Communications Limited and MTN Afghanistan Limited have the right to put their shareholding in the respective companies to MTN Nigeria and MTN (Dubai) Limited, respectively.
The put options on the Group’s own equity resulted in the recognition of a liability at fair value. Subsequent to initial recognition, the liability is measured at amortised cost using the effective interest method. To the extent that the put options are not exercisable at a fixed strike price, the estimated future cash flows change as the fair market value of the underlying equity changes. As the estimated future cash payments change, the net carrying amount of the financial liability will change accordingly. This change in the carrying amount is recognised in profit or loss.
The fair value of the MTN Nigeria put option is estimated based upon a comparison of valuations ascribed to the underlying equity by research analysts, publicly observed trading levels of comparable companies, transaction values paid in comparable transactions, and discounting of all future cash flows of the business to derive a fair present value. The valuation techniques include assumptions in respect of future cash flow growth, discount factors and terminal values.
The fair value of the MTN Afghanistan put option, in terms of which the IFC has the right to put 9,1% of their shareholding obtained during the current financial year to MTN Dubai, is determined based on an EBITDA multiple, as determined in accordance with the terms and conditions of the contractual arrangement. This put option is currently not exercisable.
In addition, the previously disclosed option in terms of which MTN had a put option and the non-controlling shareholders a call option in respect of 1% of the issued share capital of MTN Cyprus Limited, was exercised during the current financial year for an amount of R5,4 million (note 45.1). The change in shareholding did not result in a loss of control.
December 2010
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December 2009
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23. TRADE AND OTHER PAYABLES
Trade payables 3 342 6 275
Sundry creditors 1 823 4 768
Accrued expenses 13 188 11 146
Current portion of deferred gain (note 21) 248 273
Other payables 1 454 2 278
20 055 24 740
The Group’s exposure to currency and liquidity risk related to trade and other payables is disclosed in note 47.
Notes to the Group financial statements continued for the year ended 31 December 2010
183MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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24. PROVISIONS
At beginning
of yearRm
Additional provisions
Rm
Unused amounts reversed
RmUtilised
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Exchangedifferences
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At end of year
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ProvisionsDecember 2010Bonus provision 477 377 (17) (355) (29) 453Provision for decommissioning 194 31 (2) (121) (8) 94 Onerous leases 532 — (532) — — —Licence obligations 77 — — (25) — 52Other provisions 1 468 1 417 (82) (170) (130) 2 503
2 748 1 825 (633) (671) (167) 3 102
December 2009Bonus provision 466 429 (30) (344) (44) 477 Decommissioning provision 289 53 (19) (74) (55) 194 Onerous leases 685 209 (50) (212) (100) 532Licence obligations 261 — — (184) — 77Other provisions 1 591 147 — (80) (190) 1 468
3 292 838 (99) (894) (389) 2 748
Bonus provisionThe bonus provision consists of a performance-based bonus, which is determined by reference to the overall Company performance with regard to a set of predetermined key performance measures. Bonuses are payable annually after the MTN Group annual results have been approved.
Provision for decommissioningThis provision related to the estimate of the cost of dismantling and removing an item of property, plant and equipment and restoring the item and site on which the item is located to its original condition. The Group only recognises these decommissioning costs for the proportion of its overall number of sites for which it expects decommissioning to take place. The expected percentage has been based on actual experience in the respective operations.
Onerous leasesThe Group recognises a provision for onerous contracts when the expected benefits from the contract are less than the unavoidable costs of meeting the obligations under that contract.
Licence obligationsThe licence obligation provision represents the estimated costs to be incurred in fulfilling the Universal Services obligation.
Other provisionsThe Group is involved in various regulatory and tax matters specific to the respective jurisdictions in which the Group operates. These matters may not necessarily be resolved in a manner that is favourable to the Group. The Group has therefore recognised provisions in respect of these matters based on estimates and the probability of whether an outflow of economic benefits will be due.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010184
December 2010
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December 2009
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25. CASH GENERATED FROM OPERATIONS
Profit before tax 28 095 25 773
Adjustments for:
Finance cost 6 171 12 230
Finance income (2 077) (6 420)
Depreciation of property, plant and equipment (note 10) 13 248 11 807
Amortisation of intangible assets (note 11) 2 120 2 668
Loss on disposal of property, plant and equipment (note 5) 146 132
Share of results of associates after tax less dividends received (52) 5
Profit on disposal of investment — (53)
Increase in provisions 760 218
Amortisation of prepaid expenses — 207
Impairment on intangible assets 32 14
Impairment loss on property, plant and equipment (note 10) (231) 167
Impairment on trade receivables (note 16) 224 283
MTN Zakhele notional vendor finance 1 382 —
Other 52 (304)
49 870 46 727
Changes in working capital 666 2 905
(Decrease)/increase in inventories (279) 240
Increase in unearned income 1 333 1 046
Increase in receivables and prepayments 2 130 2 539
Increase in trade and other payables (2 518) (920)
Cash generated from operations 50 536 49 632
Notes to the Group financial statements continued for the year ended 31 December 2010
185MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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26. INCOME TAX PAID
Opening balance (3 562) (5 078)
Amounts recognised in profit or loss (note 7) (11 268) (8 612)
Deferred tax credit (note 14) 1 984 992
Effect of movements in exchange rates 1 080 1 339
Reversal of tax provision — 195
Withholding taxes not paid — 759
Closing balance 3 738 3 562
– Taxation prepaid (721) (113)
– Taxation liabilities 4 459 3 675
Total tax paid (8 028) (6 843)
27. CASH AND CASH EQUIVALENTS
For purposes of the cash flow statement, cash and cash equivalents comprise the following:
Cash at bank and on hand 35 947 23 999
Bank overdraft (40) (1 353)
35 907 22 646
MTN (Dubai) Limited and MTN Uganda have secured facilities through the pledge of their cash and cash equivalents. Please refer to note 20.
Included in cash and cash equivalent balances are amounts relating to the Syrian operations. The Syrian markets have only recently started liberalising foreign exchange legislation to allow for the purchase of foreign currency which is therefore still limited, hence the Group’s difficulty in obtaining foreign currency in this market. This is a situation acknowledged by the Syrian authorities with whom we continue to engage.
In addition, due to sanctions imposed on Iran, it is proving difficult to repatriate funds from MTN Irancell. The Group is, however, considering various alternatives to facilitate the repatriation of the funds.
The Group’s exposure to interest rate risk, credit risk and a sensitivity analysis for financial assets and finance liabilities is disclosed in note 47.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010186
December 2010
Rm
December 2009
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28. RESTRICTED CASH
Restricted cash deposits 285 742
Restricted cash consists of monies placed on deposit with banks mainly in Nigeria, Cameroon, Dubai and Syria to secure Letters of Credit, which at reporting date were undrawn and not freely available.
29. UNDERWRITING ACTIVITIES
Underwriting activities are conducted through special purpose entities on commercial terms and conditions and at market prices.
Income statement effect
– Gross premiums written 528 395
– Outwards reinsurance premiums (132) (153)
– Other* (272) (209)
124 33
Statement of financial position effect
Share of technical provision
– Outstanding claims 41 48
– Provision for unearned premiums 20 9
61 57
Receivables 141 170
Payables (163) (245)
* Included in “other” are claims incurred, net of reinsurance; commissions paid; net operating costs; net investment income and taxation.
Notes to the Group financial statements continued for the year ended 31 December 2010
187MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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30. CONTINGENT LIABILITIES/(ASSET)
Contingent liabilities* 941 1 209
* The Group’s present policy is to pay incentives to service providers (SP) for handset upgrades. These upgrades are only payable once the subscribers have completed a 21-month period with the SP since the initial commencement of their contract or previous upgrade and the eligible subscriber has exercised the right to receive an upgrade for a new postpaid contract with minimum terms. The value of the obligation may vary depending on the prevailing business rules at the time of the upgrade. The total number of eligible subscribers who had not yet exercised their right to upgrade at 31 December 2010 was 845 413 (December 2009: 782 753). The estimated contingent liability at 31 December 2010 based on the prevailing business rules on such date amounts to R822 million (December 2009: R1 209 million).
The Group has however provided for those upgrades which have been made but not presented for payment.
31. COMMERCIAL COMMITMENTS
MTN Zambia LimitedThe licence issued by the Zambian Communications Authority (ZCA), a body corporate established under the provisions of the Telecommunications Act No 23 of 1994 Laws of Zambia, requires that ten percent (10%) of the issued share capital of MTN Zambia Limited be held by the Zambian public. The approval given by the ZCA for the company’s purchase of 100% of the share equity was on the basis that 10% should be housed in a special purpose vehicle (SPV) for the beneficial ownership of the Zambian public. Previously it was reported that the ownership of 10% by the SPV, already formed, and ultimate placement with Zambian public was concluded.
Irancell Telecommunication Service Company (Proprietary) LimitedThe investment in Irancell is subject to a number of sovereign, regulatory and commercial risks, which could result in the Group failing to realise full market value for its investment should it be required to dispose of any portion thereof. In this regard, 21% of Irancell is required to be offered to members of the Iranian public within approximately three years from the date of the licence. Such offering could have a proportional dilutory effect on the Company’s 49% shareholding, effectively reducing its shareholding by 10,3% to 38,7%. The substantial terms and conditions of this commitment are yet to be finalised.
Eastern African Submarine Cable System (EASSy)The Group, together with various other parties, has entered into a construction and maintenance agreement for the Eastern Africa Submarine Cable System (EASSy) to address the growing demand for international bandwidth in Africa. The Group’s commitment in respect of the contract amounts to USD40 million which has been settled in full on 31 December 2010 (December 2009: USD30,9 million).
Europe-India Gateway (EIG) and West Africa Cable System (WACS)The Group has entered into an agreement with several other parties to construct a high capacity fibre-optic submarine cable system. The Group’s commitment in respect of the contract amounts to USD144,8 million of which USD89,4 million has been paid at 31 December 2010.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010188
December 2010
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December 2009
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32. CAPITAL COMMITMENTS
Commitments for the acquisition of property, plant and equipment and intangible assets
Capital expenditure not yet incurred at the reporting date is as follows
– Contracted but not provided for 2 557 6 344
– Authorised but not contracted for 16 780 16 809
Group’s share of capital commitments of joint ventures
– Contracted but not provided for 1 610 436
– Authorised but not contracted for 1 184 10
Total commitments for property, plant, equipment and software 22 131 23 599
Capital expenditure will be funded from operating cash flows, existing borrowing facilities and where necessary by raising additional facilities.
33. OPERATING LEASE COMMITMENTS
The future aggregate minimum lease payments under non-cancellable operating leases are as follows
Not later than one year 164 203
Later than one year and no later than five years 184 428
Later than five years 1 201
349 832
The future aggregate minimum lease payments under cancellable operating leases are as follows
Not later than one year 479 397
Later than one year and no later than five years 1 435 1 105
Later than five years 959 480
2 873 1 982
The Group leases various premises/sites under non-cancellable/cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. Penalties are chargeable on certain leases should it be cancelled before the end of the agreement.
Notes to the Group financial statements continued for the year ended 31 December 2010
189MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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34. FINANCE LEASE COMMITMENTS
At the reporting date, the Group had outstanding commitments under non-cancellable finance leases which fall due as follows
Minimum lease payments
Not later than one year 93 86
Later than one year and no later than five years 317 359
Later than five years — 46
410 491
Less: Future finance charges on finance leases (107) (143)
Present value of finance lease obligations 303 348
Present value of finance lease obligations are as follows
Not later than one year 56 46
Later than one year and no later than five years 247 258
Later than five years — 44
303 348
35. OTHER COMMITMENTS
Sport sponsorships 83 173
Orders placed to purchase handsets 370 577
Installation on an indefeasible right of use (IRU) 38 —
491 750
MTN Group Limited Integrated Business Report for the year ended 31 December 2010190
36. INVESTMENT IN JOINT VENTURESThe Group had the following effective percentage interests in joint ventures.
Unless otherwise stated, the Group’s joint ventures country of incorporation is also their principal place of operation.
Effective % interest in issued ordinary share capital
Joint venture Principal activityCountry of incorporation
December 2010
December 2009
Swazi MTN Limited Network operator Swaziland 30 30
MTN Mobile Money Holdings (Proprietary) Limited Wireless banking services South Africa 50 50
Deci Investments Investment holding company Botswana 33 33
Mascom Wireless Botswana Limited Network operator Botswana 53 53
Irancell Telecommunication Company Services (Proprietary) Limited Network operator Iran 49 49
Village Phone Rwanda Airtime sales Rwanda * 50
Satellite Data Networks Mauritius (Proprietary) Limited Internet service provider Mauritius 60 60
* The investment in Village Phone Rwanda was increased to a 100% subsidiary during the current year for an immaterial amount.
Summary financial informationThe following table presents, on a condensed basis the Group’s share of assets and liabilities, revenue and expenses of the joint ventures which are included in the consolidated statement of financial position and income statement.
December 2010
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December 2009
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Revenue 10 206 8 592
Expenses (5 915) (5 457)
Non-current assets 7 312 7 780
Current assets 4 954 3 691
Total assets 12 266 11 471
Non-current liabilities (3 812) (4 704)
Current liabilities (7 241) (6 338)
Total liabilities (11 053) (11 042)
There are no significant contingent liabilities and capital commitments relating to the Group’s interests in these joint ventures.
Notes to the Group financial statements continued for the year ended 31 December 2010
191MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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37. TRANSFER PRICINGIn terms of the transfer pricing provisions contained in section 31 of the South African Income Tax Act, No 58 of 1962 (the Act), where a taxpayer supplies financial services to a connected person who is a non-South African resident, interest should be charged on an arm’s length basis. The Group has consistently taken the view, based on professional advice, that the provisions of section 31 should not apply in respect of the loan element of shareholder equity funding to its African subsidiaries and joint ventures. The Group and its tax advisers continue to believe in the soundness of the approach adopted and accordingly consider that there is no necessity to raise a provision for any potential liability in this regard.
38. EXCHANGE RATES TO SOUTH AFRICAN RAND USED FOR THE PURPOSES OF IAS 21 TRANSLATIONS
Closing rates Average ratesDecember
2010December
2009December
2010December
2009
United States dollar USD 0,15 0,14 0,14 0,12
Uganda shilling UGX 348,03 256,43 295,99 242,29
Rwanda franc RWF 89,27 78,89 79,33 67,85
Cameroon Communaute Financière Africaine franc XAF 74,20 61,89 67,26 56,58
Nigerian naira NGN 23,00 20,29 20,67 17,83
Iranian rials IRR 1 565,67 1 353,72 1 401,06 1 195,03
Botswana pula BWP 0,98 0,90 0,93 0,86
Ivory Coast Communaute Financière Africaine franc CFA 76,07 61,89 67,43 57,08
Congo-Brazzaville Communaute Financière Africaine franc CFACB 74,20 61,89 67,78 57,01
Zambian kwacha ZMK 722,67 626,66 673,78 614,04
Swaziland emalangeni SZL 1,00 1,00 1,00 1,00
Lebanese pound LBP 226,48 202,98 204,85 179,19
Afghanistan afghani AFN 6,84 6,58 6,29 5,98
Euro EUR 0,11 0,09 0,10 0,09
British pound sterling GBP 0,10 0,08 0,09 0,07
Ghana cedi GHC 0,22 0,19 0,20 0,17
Benin Communaute Financière Africaine franc XOF 74,20 61,89 67,62 56,06
Guinean franc GNF 1 080,97 740,87 863,84 592,69
Sudanese pound SDG 0,40 0,32 0,34 0,29
Syrian pound SYP 7,13 6,20 6,39 5,59
Guinea-Bissau Communaute Financière Africaine franc XOF 75,46 61,92 67,45 55,84
Yemen rial YER 32,32 28,07 30,22 24,25
MTN Group Limited Integrated Business Report for the year ended 31 December 2010192
December 2010
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December 2009
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39. FOREIGN EXCHANGE EXPOSURE
Included in the Group statement of financial position are the following amounts denominated in currencies other than the functional currency of the reporting entities
Assets
Non-current assets
– US dollar 194 33
– Euro 1 380 2 056
– South African rand — 15
1 574 2 104
Current assets
– US dollar 9 868 8 660
– Euro 2 957 1 120
– British pound sterling 13 —
– Sudanese pound — 50
– CFA Congo-Brazzaville 154 —
– CFA Benin 57 —
– Ghana cedi 87 —
– Yemen rial 254 —
13 390 9 830
Total assets 14 964 11 934
Notes to the Group financial statements continued for the year ended 31 December 2010
193MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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39. FOREIGN EXCHANGE EXPOSURE (continued)
Liabilities
Non-current liabilities
– US dollar (880) (12 319)
– Euro (433) (209)
– Nigerian naira (2 795) —
– CFA Congo-Brazzaville (169) —
(4 277) (12 528)
Current liabilities
– US dollar (8 278) (3 981)
– British pound sterling (8) —
– Euro (2 358) (1 040)
– CFA Congo-Brazzaville (250) (173)
– Sudanese pound — (39)
– Syrian pound — (19)
– South African rand (231) (23)
(11 125) (5 275)
Total liabilities (15 402) (17 803)
MTN Group Limited Integrated Business Report for the year ended 31 December 2010194
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40. DERIVATIVES
Included in the statement of financial position are the following derivatives:
– Liabilities (255) (585)
(255) (585)
Fair value profit/(loss)
– taken to income statement (234) (585)
– taken to cash flow hedge reserves 77 (191)
Notional principal amount (USD forward exchange contracts) 1 908 2 860
41. OTHER INVESTMENTS
Available for sale financial assets* — 6
* Consists of various investments made via Merrill Lynch, Forties and HSBC. No impairments have been made relating to the available-for-sale financial assets
42. EVENTS AFTER THE REPORTING PERIOD
The directors are not aware of any matter or circumstance arising since the end of the reporting period, not otherwise dealt with herein, which significantly affects the financial position of the Group or the results of its operations or cash flows for the period ended.
43. RELATED PARTY TRANSACTIONS
Various transactions are entered into by the Company and its subsidiaries during the year with related parties. The terms of these transactions are at arm’s length. Intra-group transactions are eliminated on consolidation.
Key management compensation
Salaries and other short-term employee benefits 17 15
Post-employment benefits 2 2
Other benefits 2 1
Bonuses 25 13
Share options — 241
Total 46 272
Notes to the Group financial statements continued for the year ended 31 December 2010
195MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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43. RELATED PARTY TRANSACTIONS (continued)Loan to shareholderPreviously, certain legal claims were made against MTN Dubai and Scancom Limited (MTN Ghana) by two previous MTN Ghana shareholders; claiming beneficial title to a portion of the shares in MTN Ghana. As a result of this, an agreement was reached between M1 Limited (M1) and MTN Dubai that they will share the cost of settlement of these claims. During the prior year a loan was granted to M1 in respect of their share of these costs which was paid by MTN on their behalf.
This loan has fixed repayments and is interest free. The balance of this loan as at year-end is as followsDecember
2010Rm
December 2009
Rm
Balance at beginning of year 150 208
Payments made to date (52) (52)
Effect of movement in exchange rates (9) (6)
Balance at end of year 89 150
The loan has been accounted for accordingly in terms of IAS 39.
For details of transactions/balances between the Company and its related parties, refer to note 11 of the Company financial statements.
Subsidiaries and joint venturesDetails of investments in subsidiaries and joint ventures (note 36) are disclosed in Annexure 1 of the financial statements.For details on the put option please refer to note 22.Outstanding loans with Irancell are disclosed in note 13.
AssociatesDetails of investments in associates are disclosed in note 12 of the financial statements.
DirectorsDetails of directors’ remuneration are disclosed in note 5 of the Group financial statements as well as in the Directors’ Report under the heading “Details of emoluments and related payments”.
ShareholdersThe principal shareholders of the Company are disclosed in the directors’ report under the heading “Shareholders’ interest”.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010196
44. BUSINESS COMBINATIONS
44.1 AcquisitionsDuring the year under review, the Group did not conclude any business combinations as defined in accordance with IFRS.
44.2 Prior year acquisitionsDuring the prior year, certain subsidiaries of the Group acquired the following entities:(a) An additional 59% in iTalk Cellular (Proprietary) Limited, a cellular service provider, was acquired in January 2009 for a purchase consideration
of R355 million.(b) 100% of Verizon South Africa (Proprietary) Limited, an internet service provider, was acquired in February 2009 for a purchase consideration
of R1 771 million.
iTalk and Verizon SA acquisitions Carrying
amount onacquisition date
Rm
Total fair value
Rm
The assets and liabilities arising from the acquisitions are as follows
Property, plant and equipment 106 106
Other non-current assets 95 95
Investments 1 1
Cash and cash equivalents 95 95
Net working capital 42 42
Borrowings (118) (118)
Taxation liabilities 7 7
Deferred tax liabilities — (80)
Customer relationships — 284
Other liabilities (56) (56)
Net asset value 172 376
Purchase consideration 2 126
Fair value of net assets acquired (376)
Goodwill 1 750
Notes to the Group financial statements continued for the year ended 31 December 2010
197MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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45. CHANGES IN SHAREHOLDING
45.1 The disposal of 1% of MTN CyprusIn November 2010, the shareholding in MTN Cyprus, a telecommunications company incorporated in Cyprus, was reduced from 51% to 50% for R5,4 million. The transaction did not result in a loss of control.
Carrying amount on
acquisition date Rm
The assets and liabilities disposed of are as followsProperty, plant and equipment 5Intangibles 2Investments 2Inventories and receivables 1Cash and cash equivalents *Borrowings (5)Payables (6)Net assets disposed of (1)Considerations received 5Profit on disposal included in equity on consolidation 6* Amounts less than 1 million.
45.2 MTN (Zambia) LimitedIn 2010 MTN Zambia issued a further 7,8% of its shares to an SPV resulting in a dilution of the Group’s investment from 97,8% to 90,0%.
45.3 MTN Afghanistan LimitedIn 2010 the shareholding in MTN Afghanistan was reduced from 100% to 90,9% however due to the put option a 100% is consolidated.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010198
45. CHANGES IN SHAREHOLDING (continued)
Prior year changes in shareholdings
45.4 MTN Uganda additional shares acquisitionDuring July 2009 the Group increased its shareholding in MTN Uganda from 95,4% to 96,0% for R51 million.
Carrying amount on
acquisition date Rm
The assets and liabilities arising from the acquisitions are as followsProperty, plant and equipment 24 Other non-current assets 6
Cash and cash equivalents 1
Net working capital (4)
Borrowings (6)
Taxation liabilities (1)
Deferred tax liabilities (4)
Net asset value 16
Purchase consideration 51
Net assets acquired (16)
Difference included in equity on consolidation 35
45.5 MTN (Zambia) Limited private placementIn February 2009, MTN Zambia issued 2,2% of its shares to the public for a consideration of R24,6 million. This resulted in a dilution of the Group’s investment from 100% to 97,8%.
Notes to the Group financial statements continued for the year ended 31 December 2010
199MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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December 2010
Rm
December 2009 Rm
46. CASH FLOWS RELATING TO BUSINESS COMBINATIONS AND CHANGES IN SHAREHOLDINGS
46.1 Cash flows relating to business combinations
Prior year acquisitions — (2 300)
— (2 300)
Amounts shown in the cash flow statement
Change in shareholding — (2 300)
Cash acquired — 95
— (2 205)
46.2 Cash flows relating to changes in shareholding
Disposal of 1% of MTN Cyprus Limited 5 —
Proceeds from the issue of shares to non-controlling interests
– Cyprus 21 —
– Zambia — —
– Afghanistan 98 —
Prior year change in shareholding — (26)
124 (26)
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTSIntroductionThe Group has exposure to the following risks from its use of financial instruments: credit risk, liquidity risk and market risk (foreign exchange and interest rate risk). This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
Risk profileThe Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group uses derivative financial instruments, such as forward exchange contracts, to hedge certain exposures, but as a matter of principle, the Group does not enter into derivative contracts for speculative purposes.
Risk management is carried out under policies approved by the board of directors of the Group and of relevant subsidiaries. The MTN Group executive committee identifies, evaluates and hedges financial risks in co-operation with the Group’s operating units. The board provides written principles for overall risk management, as well as for specific areas such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments, and investing excess liquidity.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010200
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.1 Accounting classes and fair values
Assets Liabilities
Loans and receivables
Rm
Available-for-sale
Rm
Amortised costRm
Fair value through
profit and loss
Rm
Total carryingamount
Rm
Fair value
Rm
December 2010
Non-current financial assets
Loans and other non-current receivables 3 369 — — — 3 369 3 369
Current financial assets
Current portion of loans and other non-current receivables 2 458 — — — 2 458 2 458
Trade and other receivables 11 165 — — — 11 165 11 165
Bank and cash 35 947 — — — 35 947 35 947
Restricted cash 285 — — — 285 285
53 224 — — — 53 224 53 224
Non-current financial liabilities
Borrowings — — 24 857 — 24 857 24 857
Put option obligations — — 171 — 171 171
Other non-current liabilities — — 1 181 — 1 181 1 181
Current financial liabilities
Trade and other payables — — 18 353 — 18 353 18 353
Current borrowings — — 10 431 — 10 431 10 431
Put option obligations — — 2 625 — 2 625 2 625
Derivatives — — — 255 255 255
Bank overdrafts — — 40 — 40 40
— — 57 658 255 57 913 57 913
Notes to the Group financial statements continued for the year ended 31 December 2010
201MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.1 Accounting classes and fair values (continued)
Assets Liabilities
Loans and receivables
Rm
Available-for-sale
Rm
Amortised costRm
Fair value through
profit and loss
Rm
Total carryingamount
Rm
Fair value
Rm
December 2009
Non-current financial assets
Loans and other non-current receivables 3 813 — — — 3 813 3 813
Current financial assets
Current portion of loans and other non-current receivables 3 269 — — — 3 269 3 269
Trade and other receivables 12 485 — — — 12 485 12 485
Restricted cash 742 — — — 742 742
Other investments — 6 — — 6 6
Cash and cash equivalents 23 999 — — — 23 999 23 999
44 308 6 — — 44 314 44 314
Non-current financial liabilities
Borrowings — — (21 066) — (21 066) (21 066)
Other non-current liabilities — — (269) — (269) (269)
Current financial liabilities
Borrowings — — (14 498) — (14 498) (14 498)
Trade and other payables — — (22 462) — (22 462) (22 462)
Put option obligations — — (2 638) — (2 638) (2 638)
Derivatives — — — (585) (585) (585)
Bank overdraft — — (1 353) — (1 353) (1 353)
— — (62 286) (585) (62 871) (62 871)
MTN Group Limited Integrated Business Report for the year ended 31 December 2010202
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.2 Fair value estimationEffective 1 January 2009, the Group adopted the amendment to IFRS 7 for financial instruments that are measured in the statement of financial position at fair value, this requires disclosure of fair value measurements by level of the following fair value measurement hierarchy:
Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that
is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the Group’s assets and liabilities that are measured at fair value.
Level 1Rm
Level 2Rm
Level 3Rm
Total carryingamount
Rm
December 2010Liabilities
Derivative liabilities — 255 — 255
Total liabilities — 255 — 255
December 2009
Assets
Available-for-sale financial assets 7 — — 7
Total assets 7 — — 7
Liabilities
Derivative liabilities — 585 — 585
Total liabilities — 585 — 585
The fair value of financial instruments traded in active markets is based on quoted market prices at the reporting date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1. Instruments included in level 1 comprise primarily FTSE 100 equity investments classified as trading securities or available-for-sale.
The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximise the use of observable market date where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.
Specific valuation techniques used to value financial instruments include: Quoted market prices or dealer quotes for similar instruments; The fair value of interest rate swaps is calculated as a present value of estimated future cash flows based on observable yield curves; The fair value of forward foreign exchange contracts is determined using forward exchange rates at the reporting date, with the resulting value
discounted back to present value; and Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.
Notes to the Group financial statements continued for the year ended 31 December 2010
203MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.3 Credit riskCredit risk, or the risk of financial loss to the Group due to customers or counterparties not meeting their contractual obligations, is managed through the application of credit approvals, limits and monitoring procedures.
The Group’s maximum exposure to credit risk is represented by the carrying amount of the financial assets that are exposed to credit risk, with the exception of financial guarantees granted by the Group for which the maximum exposure to credit risk is the maximum amount the Group would have to pay if the guarantees are called on.
The Group holds collateral over certain trade and other receivables. The collateral is made up of demand guarantees from financial institutions and Credit Guarantee Insurance Company (CGIC) policies which can be exercised on overdue invoices.
The following instruments give rise to credit riskDecember
2010Rm
December 2009
Rm
Cash at bank and on hand; net of overdrafts 35 907 22 646
Restricted cash 285 742
Trade and other receivables 11 165 12 485
47 357 35 873
Cash and cash equivalentsThe Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate values of transactions concluded is spread amongst approved financial institutions. The Group actively seeks to limit the amount of credit exposure to any one financial institution and credit exposure is controlled by counterparty limits that are reviewed and approved by the credit risk department.
Given these credit ratings, management does not expect any counterparty to fail to meet its obligations.
Trade and other receivablesThe Group has no significant concentrations of credit risk, due to its widespread of customers across various operations and dispersion across geographical locations. The Group has policies in place to ensure that retail sales of products and services are made to customers with an appropriate credit history.
The recoverability of interconnect debtors in certain international operations is uncertain; however, this is actively managed within acceptable limits (this fact has been incorporated in the assessment of an appropriate revenue recognition policy in this regard (refer to note 2.20) and the impairment of trade receivables as applicable).
MTN Group Limited Integrated Business Report for the year ended 31 December 2010204
December 2009
RmNet
December 2010
December 2010
December 2010
RmGross
RmImpaired
RmNet
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.3 Credit risk (continued)
Ageing and impairment analysis
Undiscounted maturity analysis
Fully performing trade receivables 5 588 — 5 588 7 590
Interconnect receivables 1 686 — 1 686 2 627
Contract receivables 3 411 — 3 411 4 835
Other receivables 491 — 491 128
Past due but not impaired trade receivables 4 776 (1 571) 3 205 2 385
Interconnect receivables 2 248 (622) 1 626 1 391
0 to 3 months 499 (32) 467 613
3 to 6 months 718 (133) 585 313
6 to 9 months 462 (35) 427 326
9 to 12 months 569 (422) 147 139
Contract receivables 2 317 (774) 1 543 815
0 to 3 months 681 (27) 654 390
3 to 6 months 232 (101) 131 302
6 to 9 months 961 (408) 553 123
9 to 12 months 443 (238) 205 —
Other receivables 211 (175) 36 179
0 to 3 months 38 (38) — 144
3 to 6 months 112 (96) 16 7
6 to 9 months 16 — 16 28
9 to 12 months 45 (41) 4 —
Total 10 364 (1 571) 8 793 9 975
Notes to the Group financial statements continued for the year ended 31 December 2010
205MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.3 Credit risk (continued)
Total past due but not impaired per significant operationInterconnect
receivablesRm
Contract receivables
Rm
Other receivables
RmTotal
Rm
December 2010
MTN RSA 42 1 342 — 1 384
MTN Nigeria 319 71 81 471
MTN Irancell 1 065 45 4 1 114
Rest of Africa and Middle East 822 859 126 1 807
2 248 2 317 211 4 776
December 2009
MTN RSA 4 18 — 22
MTN Nigeria 541 243 4 788
MTN Irancell 509 5 — 514
Rest of Africa and Middle East 337 549 175 1 061
1 391 815 179 2 385
Certain of the loans to Irancell Telecommunications Services Company (Proprietary) Limited that are contractually receivable within the next financial year, have been classified as long-term due to management’s intention not to call these loans within the next 12 months. These loans earn market-related interest and management believe them to be fully recoverable based on the future prospects of Irancell (note 13).
MTN Group Limited Integrated Business Report for the year ended 31 December 2010206
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.4 Liquidity risk
At beginning of period
RmAdditions
RmUnused
RmUtilised
Rm
Exchange differences
Rm
At end of period
Rm
Impairment movement
December 2010
Movement in provision for impairment of trade receivables (1 549) (427) 196 7 202 (1 571)
December 2009
Movement in provision for impairment of trade receivables (1 674) (375) 92 87 321 (1 549)
Liquidity risk is the risk that an entity in the Group will be unable to meets its obligations as they become due.
The Group’s approach to managing liquidity risk is to ensure that sufficient liquidity is available to meet its liabilities when due under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
The Group ensures it has sufficient cash on demand (currently the Group is maintaining a positive cash position) or access to facilities to meet expected operational expenses, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
The following liquid resources are available
December 2010
Rm
December 2009
Rm
Group
Cash at bank and on hand; net of overdrafts 35 907 22 646
Trade and other receivables 11 165 12 485
47 072 35 131
Notes to the Group financial statements continued for the year ended 31 December 2010
207MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.4 Liquidity risk (continued)The following are the contractual maturities of financial liabilities
Carrying amount
Rm
More than one year but
not exceeding two years
Rm
More than two years but
not exceeding five years
Rm
More than 5 years
Rm
December 2010
Non-current liabilities
Borrowings (24 857) (4 019) (19 178) (1 660)
Other non-current liabilities (1 352) (1 323) (29) —
(26 209) (5 342) (19 207) (1 660)
Carrying amount
Rm
Payable within 1 month or on demand
Rm
More than 1 month but
not exceeding 3 months
Rm
More than 3 months but not exceeding
1 yearRm
Current liabilities
Borrowings (10 431) (4 694) (2 816) (2 921)
Trade and other payables (18 353) (9 413) (3 461) (5 479)
Trade payables (3 342) (1 270) (1 337) (735)
Sundry creditors (1 823) (1 021) (146) (656)
Accrued expenses (13 188) (7 122) (1 978) (4 088)
Bank overdraft (40) (9) — (31)
Derivatives (255) (255) — —
Other current-liabilities (2 625) (2 625) — —
(31 704) (16 996) (6 277) (8 431)
MTN Group Limited Integrated Business Report for the year ended 31 December 2010208
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.4 Liquidity risk (continued)
Carrying amount
Rm
More than one year but
not exceeding two years
Rm
More than two years but
not exceeding five years
Rm
More than 5 years
Rm
December 2009
Non-current liabilities
Borrowings 21 066 6 870 11 683 2 513
Other non-current liabilities 269 269 — —
21 335 7 139 11 683 2 513
Carrying amount
Rm
Payable within 1 month or on demand
Rm
More than 1 month but
not exceeding 3 months
Rm
More than 3 months but not exceeding
1 yearRm
Current liabilities
Borrowings 14 498 1 570 998 11 930
Trade and other payables 22 189 5 109 6 778 10 302
Trade payables 6 275 1 515 2 722 2 038
Sundry creditors 4 768 1 986 1 590 1 192
Accrued expenses 11 146 1 608 2 466 7 072
Bank overdraft 1 353 1 353 — —
Derivative liability 585 — — 585
Other current-liabilities 2 638 2 638 — —
41 263 10 670 7 776 22 817
Notes to the Group financial statements continued for the year ended 31 December 2010
209MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.5 Market riskMarket risk is the risk that changes in market prices (interest rate and currency risk) will affect the Group’s income or the value of its holding of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
47.6 Interest rate riskInterest rate risk is the risk borne by an interest-bearing asset, due to variability of interest rates.
Financial assets and liabilities that are sensitive to interest rate risk are cash and cash equivalents, bank overdrafts and loans receivable/payable. The interest rates applicable to these financial instruments are on a combination of floating and fixed basis in line with those currently available in the market.
The Group’s interest rate risk arises from the repricing of the Group’s forward cover and floating rate debt, incremental funding or new borrowings, the refinancing of existing borrowings and the magnitude of the significant cash balances which exist.
Debt in the South African entities and all holding companies (including MTN (Dubai) Limited and MTN International (Mauritius) Limited) is managed on an optimal fixed versus floating interest rate basis, in line with the approved Group Treasury Policy. Significant cash balances are also considered in the fixed versus floating interest rate exposure mix.
Debt in the majority of MTN’s non-South African operations is at floating interest rates. This is due to the underdeveloped and expensive nature of derivative products in these financial markets. MTN continues to monitor developments which may create opportunities as these markets evolve in order that each underlying operation can be aligned with the Group Treasury Policy.
The Group makes use of various products including interest rate derivatives and other appropriate hedging tools as a way to manage these risks; however, derivative instruments may only be used to hedge existing exposures.
ProfileAt the reporting date the interest rate profile of the Group’s interest-bearing financial instruments was
December 2010 December 2009Fixed rate
instrumentsRm
Variable rate instruments
Rm
Fixed rateinstruments
Rm
Variable rateinstruments
Rm
Financial assetsLoans and non-current receivables — 1 280 — 4 804 Bank and cash 10 976 22 727 16 510 5 847 Restricted cash — 285 — —Trade and other receivables 171 884 — 443
11 147 25 176 16 510 11 094
Financial liabilitiesBorrowings 9 006 24 383 25 732 9 564 Bank overdraft — 40 49 1 297 Trade and other payables 501 — — —Other 628 — 344 4
10 135 24 423 26 125 10 865
MTN Group Limited Integrated Business Report for the year ended 31 December 2010210
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.6 Interest rate risk (continued)
Sensitivity analysisThe Group has used a sensitivity analysis technique that measures the estimated change to profit or loss of an instantaneous increase or decrease of 1% (100 basis points) in market interest rates, from the rate applicable at 31 December, for each class of financial instrument with all other variables remaining constant. This analysis is for illustrative purposes only, as in practice market rates rarely change in isolation.
The Group is mainly exposed to fluctuations in the following market interest rates: JIBAR, LIBOR, NIBOR and EURIBOR. Changes in market interest rates affect the interest income or expense of floating rate financial instruments. Changes in market interest rates only affect profit or loss in relation to financial instruments with fixed interest rates if these financial instruments are recognised at their fair value.
A change in the above market interest rates at the reporting date would have increased/(decreased) profit before tax by the amounts shown below.
The analysis has been performed on the basis of the change occurring at the start of the reporting period and assumes that all other variables, in particular foreign currency rates, remains constant. The analysis is performed on the same basis for 2009.
December 2010 December 2009
Increase/(decrease) in profit before tax Increase/(decrease) in profit before tax
Change in interest rate
%
Upward change in
interest rateRm
Downward change in
interest rateRm
Change in interest rate
%
Upward change in
interest rateRm
Downwardchange in
interest rateRm
JIBAR 1 (50,4) 50,4 1 (149,7) 149,7
LIBOR 1 (23,9) 23,9 1 (285,3) 285,3
NIBOR 1 (89,4) 89,4 1 — —
EURIBOR 1 (22,7) 22,7 1 22,1 (22,1)
Money market 1 85,9 (85,9) 1 2,2 (2,2)
Prime 1 101,7 (101,7) 1 19,2 (19,2)
Other 1 (68,3) 68,3 1 139,7 (139,7)
Notes to the Group financial statements continued for the year ended 31 December 2010
211MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.7 Currency riskCurrency risk is the exposure to exchange rate fluctuations that have an impact on cash flows and financing activities.
The Group operates internationally and is exposed to currency risk arising from various currency exposures. Currency risk arises when future commercial transactions or recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. MTN is also exposed to translation risk as holding companies does not report in the same currencies as operating entities.
Where possible, entities in the Group use forward contracts to hedge their actual exposure to foreign currency. The Group’s Nigerian subsidiary manages foreign currency risk on major foreign purchases by placing foreign currency on deposit as security against Letters of Credit (LCs) when each order is placed.
The Group has foreign subsidiaries whose assets are exposed to foreign currency translation risk, which is managed primarily through borrowings denominated in the relevant foreign currencies to the extent that such funding is available on reasonable terms in the local capital markets.
Sensitivity analysisThe Group has used a sensitivity analysis technique that measures the estimated change to profit or loss and equity of an instantaneous 10% strengthening or weakening in the rand against all other currencies, from the rate applicable at 31 December, for each class of financial instrument with all other variables remaining constant. This analysis is for illustrative purposes only, as in practice, market rates rarely change in isolation.
The Group is mainly exposed to fluctuations in foreign exchange rates in respect of South African rand, US dollar, Nigerian naira, Euro, Syrian pound, Iranian rials, Ghanaian cedi, Sudanese pound and Zambian kwacha. This analysis considers the impact of changes in foreign exchange rates on profit, excluding foreign exchange translation differences resulting from the translation of Group entities that have functional currencies different from the presentation currency, into the Group’s presentation currency (and recognised in the foreign currency translation reserve).
A change in the foreign exchange rates to which the Group is exposed at the reporting date would have increased/(decreased) profit before tax by the amounts shown below.
The analysis has been performed on the basis of the change occurring at the start of the reporting period and assumes that all other variables, in particular interest rates, remains constant. The analysis is performed on the same basis for 2009.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010212
47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.7 Currency risk (continued)
Sensitivity analysis (continued)Increase/(decrease) in profit before tax
Denominated: functional currency
Change in exchange rate
%
Weakening in functional
currencyRm
Strengthening in functional
currencyRm
December 2010USD:ZAR 10 577,1 (577,1)
USD:SYP 10 (9,3) 9,3
USD:IRR 10 (179,3) 179,3
USD:SDG 10 (140,4) 140,4
USD:NGN 10 (243,2) 243,2
USD:RWF 10 (23,0) 23,0
EUR:ZAR 10 84,6 (84,6)
EUR:SYP 10 4,9 (4,9)
EUR:IRR 10 (138,0) 138,0
EUR:SDG 10 (141,5) 141,5
December 2009USD:ZAR 10 (15,3) 15,3
USD:SYP 10 (77,4) 77,4
USD:IRR 10 (403,9) 403,9
USD:CEDIS 10 15,5 (15,5)
USD:SDG 10 (3,7) 3,7
USD:NGN 10 (157,0) 157,0
USD:RWF 10 (52,4) 52,4
EUR:ZAR 10 45,4 (45,4)
EUR:SYP 10 5,2 (5,2)
EUR:IRR 10 (31,3) 31,3
EUR:SDG 10 2,8 (2,8)
Notes to the Group financial statements continued for the year ended 31 December 2010
213MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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47. FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (continued)
47.8 Price riskThe Group is not exposed to unnecessary commodity price risk or material equity securities price risk.
47.9 Capital risk managementThe Group’s policy is to maximise borrowings at an operating company level, on a non-recourse basis, within an acceptable level of debt for the maturity of the local company.
Equity funding for existing operations or new acquisitions is raised centrally, first from excess cash and then from new borrowings while retaining an acceptable level of debt for the consolidated Group. Where funding is not available to the operation locally or in specific circumstances where it is more efficient to do so, funding is sourced centrally and on-lent. The Group’s policy is to borrow using a mixture of long-term and short-term capital market issues and borrowing facilities from the local and international capital markets as well as multilateral organisations together with cash generated to meet anticipated funding requirements.
The board of directors has approved three key debt protection ratios at a consolidated level being: Net debt:EBITDA, net debt:equity and net interest to EBITDA. Net debt is defined as cash and cash equivalents less interest-bearing borrowings. Equity approximates share capital and reserves attributable to equity holders of the Company.
These internal ratios establish levels of debt that the Group should not exceed other than for relatively short periods of time and are shared with the Group’s debt rating agencies, being Moody’s and Fitch.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010214
Company income statement for the year ended 31 December 2010
Company statement of comprehensive income for the year ended 31 December 2010
December 2010
Rm
December 2009
Rm
Profit after tax 3 347 8 231
Total comprehensive income for the period 3 347 8 231
Attributable to
Equity holders of the Company 3 347 8 231
3 347 8 231
The notes on pages 218 to 227 are an integral part of these consolidated financial statements.
Note
December 2010
Rm
December 2009
Rm
Other operating expenses 1 (3 019) (10 081)
Operating loss (3 019) (10 081)
Finance income 2 7 001 18 682
Finance costs 2 (3) (8)
Profit before tax 3 979 8 593
Income tax expense 3 (632) (362)
Profit after tax 3 347 8 231
The notes on pages 218 to 227 are an integral part of these consolidated financial statements.
215MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Company statement of financial position at 31 December 2010
Note
December 2010
Rm
December 2009
Rm
ASSETS
Non-current assets 23 708 23 707
Interest in subsidiaries 4 23 708 23 707
Current assets 91 144
Trade and other receivables 5 87 142
Cash and cash equivalents 6 4 2
Total assets 23 799 23 851
SHAREHOLDERS’ EQUITY
Ordinary shares and share premium 7 45 602 44 297
Retained earnings (23 638) (20 672)
Reserves 1 662 108
Total equity 23 626 23 733
LIABILITIES
Current liabilities 173 118
Taxation liabilities 24 26
Trade and other payables 8 149 92
Total liabilities 173 118
Total equity and liabilities 23 799 23 851
The notes on pages 218 to 227 are an integral part of these consolidated financial statements.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010216
Company statement of changes in equity for the year ended 31 December 2010
Sharecapital
Rm
Sharepremium
RmRetainedearnings
ReservesRm
TotalRm
Balance at 1 January 2009 * 23 905 74 101 24 080
Shares issued during the year * 20 392 — — 20 392
Newshelf share buy-back — — (21 226) — (21 226)
Newshelf fair value movement in shares — — (4 369) — (4 369)
Share-based payments reserve — — — 7 7
Comprehensive income — — 8 231 — 8 231
Dividends paid — — (3 382) — (3 382)
Balance at 31 December 2009 * 44 297 (20 672) 108 23 733
Balance at 1 January 2010 * 44 297 (20 672) 108 23 733
Shares issued during the year * 11 — — 11
MTN Zakhele transaction — 1 294 — 1 382 2 676
Employee share option plan — — — 171 171
Share-based payments reserve — — — 1 1
Comprehensive income — — 3 347 — 3 347
Dividends paid — — (6 313) — (6 313)
Balance at 31 December 2010 * 45 602 (23 638) 1 662 23 626
The notes on pages 218 to 227 are an integral part of these consolidated financial statements.
*Amounts less than R1 million.
217MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Company statement of cash flowsfor the year ended 31 December 2010
Note
December 2010
Rm
December 2009
Rm
CASH FLOWS FROM OPERATING ACTIVITIES
CASH UTILISED BY OPERATIONS 9 (1 348) (406)
Interest paid * (1)
Interest received 6 18
Income tax paid 10 (635) (362)
Dividends paid (6 313) (3 381)
Dividends received 6 987 4 280
Net cash generated/(utilised) in operating activities (1 303) 148
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of ordinary shares 1 305 36
Cash outflow on share buy-back — (463)
Net cash generated/(used in) from financing activities 1 305 (428)
Net increase/(decrease) in cash and cash equivalents 2 (280)
Cash and cash equivalents at beginning of year 2 282
Cash and cash equivalents at end of year 6 4 2
* Amounts less than R1 million.
The cash flows shown above are presented net of VAT.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010218
Notes to the Company financial statements for the year ended 31 December 2010
December 2010
Rm
December 2009
Rm
1. OPERATING PROFIT
The following items have been included in arriving at profit before tax
Directors’ emoluments (14) (11)
– Directors’ fees (14) (11)
Fees paid for services (189) (80)
– Administrative (136) (4)
– Management (note 11) (53) (76)
Management fees received (note 11) 58 82
Donation to Newshelf — (9 577)
2. FINANCE INCOME AND FINANCE COSTS
Recognised in profit or loss
Interest income 6 17
Foreign exchange gains 8 1
Other — 3
Dividend income 6 987 18 661
Finance income 7 001 18 682
Interest on borrowings (3) (8)
Net finance income recognised in profit or loss 6 998 18 674
219MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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December 2010
Rm
December 2009
Rm
3. INCOME TAX EXPENSE
Secondary tax on companies (631) (337)
Normal tax — (24)
Deferred tax charge (1) (1)
(632) (362)
South African normal taxation is calculated at 28% (December 2009: 28%) of the estimated taxable income for the year.
December 2010
%
December 2009
%
Tax rate reconciliation
The charge for the year can be reconciled to the effective rate of taxation in South Africa as follows:
Tax at standard rate 28,0 28,0
Exempt income (49,2) (60,8)
Effect of STC 15,9 3,9
Prior year under/overprovision — 0,2
Expenses not deductible for tax purposes 21,2 32,9
15,9 4,2
MTN Group Limited Integrated Business Report for the year ended 31 December 2010220
Notes to the Company financial statements continued for the year ended 31 December 2010
December 2010
Rm
December 2009
Rm
4. INVESTMENT IN SUBSIDIARIES
Mobile Telephone Networks Holdings (Proprietary) Limited 22 173 22 173
Loan owing by subsidiary** 1 478 1 480
Net interest in subsidiary Mobile Telephone Networks Holdings 23 651 23 653
MTN Group Management Services (Proprietary) Limited * *
Loan owing by subsidiary 57 54
Net interest in MTN Group Management Services 57 54
Total interest in subsidiary companies 23 708 23 707
* Amounts less than R1 million.** This loan account has been subordinated in favour of certain of the Group’s lenders. This loan bears no interest and there are no fixed
terms of repayment.
5. TRADE AND OTHER RECEIVABLES
Trade receivables due from related parties*** 85 134
Trade receivables – net 85 134
Prepayments and other receivables — —
Sundry debtors and advances 2 8
87 142
*** The entity believes that no impairment allowance is necessary in respect of receivables as no objective evidence existed at year end to indicate that one or more events may have a negative effect on the estimated future cash flows expected from any individual balance.
6. CASH AND CASH EQUIVALENTS
Cash at bank and on hand 4 2
221MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Number of sharesDecember
2010December
2009
7. ORDINARY SHARE CAPITALAuthorised 2 500 000 000 2 500 000 000 Issued 1 884 529 317 1 840 536 491
On issue at 1 January 1 840 536 491 1 868 010 304 Issued for cashNewshelf share buy-back — (243 500 011)Shares issued – PIC — 213 866 898 Options exercised 528 062 2 159 300 MTN Zakhele transaction 43 445 564
On issue at 31 December 1 884 510 117 1 840 536 491 Options – MTN Zakhele transaction** (29 994 952) —
On issue at 31 December – excluding MTN Zakhele transaction 1 854 515 165 1 840 536 491
December 2010
Rm
December2009
Rm
Share capitalBalance at beginning of year * *Additions * *
Balance at end of year * *
Share premiumBalance at beginning of year 44 297 23 905 Newshelf buy-back — 20 356 Options – MTN Zakhele transaction 1 294 —Options exercised 11 36
Balance at end of year 45 602 44 297 * Amounts less than R1 million.** Due to the call option over the NVF shares, although legally issued to MTN Zakhele, are not deemed to be issued in terms of IFRS
and is shown as such in the share capital reconciliation.
8. TRADE AND OTHER PAYABLES
Sundry creditors 101 77
Accrued expenses and other payables 48 15
149 92
MTN Group Limited Integrated Business Report for the year ended 31 December 2010222
December 2010
Rm
December 2009
Rm
9. CASH UTILISED BY OPERATION
Profit before tax 3 979 8 593
Adjustments for:
Finance income (note 2) (7 001) (18 682)
Finance costs (note 2) 3 8
Other 1 559 9 577
(1 460) (504)
Changes in working capital 112 98
Decrease/(increase) in trade and other receivables 102 (18)
Increase in trade and other payables 10 116
(1 348) (406)
10. INCOME TAX PAID
Balance at beginning of year (26) (19)
Amounts recognised in profit or loss (632) (362)
Other (1) (7)
Balance at end of year 24 26
Total tax paid (635) (362)
Notes to the Company financial statements continued for the year ended 31 December 2010
223MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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11. RELATED PARTY TRANSACTIONSVarious transactions were entered into by the Company during the period with related parties. The terms of these transactions are documented below.
The following is a summary of transactions with related parties during the period and balances due at reporting dateDecember
2010Rm
December 2009
Rm
Dividends received:
– Mobile Telephone Networks Holdings (Proprietary) Limited 6 987 4 280
– Newshelf 664 (Proprietary) Limited — 14 381
Donation
– Newshelf 664 (Proprietary) Limited — (9 577)
– MTN Zakhele (1 294) —
Management fees paid:
– MTN Group Management Services Company (Proprietary) Limited 53 (76)
Management fees received:
– MTN International (Proprietary) Limited 58 82
DirectorsDetails of directors’ remuneration are disclosed in note 1 of the Company financial statements as well as in the directors’ report under the heading “Details of emoluments and related payments”.
ShareholdersThe principal shareholders of the Company are disclosed in the directors’ report under the heading “Shareholders’ interest”.
12. CONTINGENT LIABILITIES AND COMMITMENTSThe Company does not have any contingent liabilities or commitments at year end.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010224
December 2010
Rm
December 2009 Rm
13. GUARANTEES
The Company has guaranteed the bonds, revolving credit facilities and general banking facilities of MTN Holdings (Proprietary) Limited.
The bond guarantees are as follows:
Bonds and commercial paper 7 291 6 300
These bonds are listed on the Bond Exchange of South Africa
Syndicated loan facilities
USD revolving-credit-facility long-term loan of USD562 million 1 230 2 763
ZAR long-term loan 1 750 3 500
ZAR long-term loan 6 000 3 917
USD short-term bridge facility 761 —
General banking facility
ZAR facility 1 519 —
Notes to the Company financial statements continued for the year ended 31 December 2010
225MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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14. FINANCIAL INSTRUMENTS
14.1 Accounting classifications and fair values
Loans and receivables
Rm
Amortised costRm
Total carrying amount
Rm
Fair value
Rm
December 2010
Current
Trade and other receivables 87 — 87 87
Cash and cash equivalents 4 — 4 4
91 — 91 91
Current
Trade and other payables — 147 147 147
— 147 147 147
December 2009
Current
Trade and other receivables 142 — 142 142
Cash and cash equivalents 2 — 2 2
144 — 144 144
Current
Trade and other payables — 92 92 92
— 92 92 92
MTN Group Limited Integrated Business Report for the year ended 31 December 2010226
14. FINANCIAL INSTRUMENTS (continued)
14.2 Credit riskThe following instruments give rise to credit risk:
December2010
December 2009
Cash and cash equivalents 4 2
Trade and other receivables 87 142
91 144
14.3 Liquidity risk
The following liquid resources are available:
December2010
Rm
December 2009
Rm
Cash at bank and on hand; net of overdrafts 4 2
Trade and other receivables 87 142
91 144
Notes to the Company financial statements continued for the year ended 31 December 2010
227MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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14. FINANCIAL INSTRUMENTS (continued)
14.3 Liquidity risk (continued)The following are the contractual maturities of financial liabilities excluding interest payments
Carrying amount
Rm
Payable within1 month or on demand
Rm
December 2010Current liabilities
Trade and other payables
– Trade payables from related parties 101 101– Accrued expenses and other payables 48 48
149 149
December 2009Current liabilitiesTrade and other payables
– Trade payables from related parties 77 77
– Accrued expenses and other payables 15 15
92 92
14.4 Interest rate riskAt the reporting date the interest rate profile of the Company’s interest-bearing financial instruments were
Variable rate instruments
Rm
December 2010Financial assets
Bank and cash 4
December 2009Financial assets
Bank and cash 2
MTN Group Limited Integrated Business Report for the year ended 31 December 2010228
Annexure 1As at 31 December 2010
INTERESTS IN SUBSIDIARY COMPANIES AND JOINT VENTURES
Effective % interest in issued ordinary share capital
Subsidiaries and joint ventures in which MTN Group Limited has a direct and indirect interest Principal activity
Place of incorporation
December 2010
%
December2009
%
MTN Afghanistan Limited Telecommunications Afghanistan 90,9 100
Spacetel Benin SA Telecommunications Benin 75 75
Deci Investments (Proprietary) Limited** Investment holding company Botswana 33 33
Econet Wireless Citizens Limited Investment holding company Botswana 82,8 82,8
Mascom Wireless Botswana (Proprietary) Limited** Network operator Botswana 53 53
MTN Business Solutions Botswana (Proprietary) Limited Internet service provider Botswana 80 80
Easy Dial International Limited Holding company British Virgin Islands 99 99
Interserve Overseas Limited International business British Virgin Islands 99 99
Investcom Consortium Holding S.A. Holding company British Virgin Islands 99 99
Investcom Global Limited Managing and holding company British Virgin Islands 99 99
Investcom International Limited Dormant company British Virgin Islands 99 99
Investcom Mobile Benin Limited Holding company British Virgin Islands 99 99
Investcom Mobile Communications Limited Holding company British Virgin Islands 100 100
Investcom Telecommunications Afghanistan Limited Holding company British Virgin Islands 100 100
Investcom Telecommunications Guinea (Conakry) Limited Holding company British Virgin Islands 99 99
Investcom Telecommunications Yemen Limited Telecommunications British Virgin Islands 100 100
MTN Yemen Telecommunications British Virgin Islands 82,8 82,8
Prime Call Limited Telecommunications British Virgin Islands 100 100
Spacetel Africa Limited Telecommunications British Virgin Islands 100 100
Starcom Global Limited Holding company British Virgin Islands 89 89
Mobile Telephone Networks Cameroon Limited Network operator Cameroon 70 70
MTN Network Solutions Limited Internet service provider Cameroon 100 100
Afnet Internet service provider Côte d’ Ivoire 100 100
229MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Effective % interest in issued ordinary share capital
Subsidiaries and joint ventures in which MTN Group Limited has a direct and indirect interest Principal activity
Place of incorporation
December 2010
%
December2009
%
Arobase Fixed line operator Côte d’ Ivoire 100 100
MTN Côte d’Ivoire SA Network operator Côte d’ Ivoire 64,7 64,7
Infotel LimitedTelecommunications and consumer products Cyprus 100 100
MTN Cyprus Limited Telecommunications Cyprus 50 51
OTEnet Cyprus Limited Telecommunications Cyprus 100 100
Uniglobe SA Management company France 99,8 99,8
Scancom Limited Telecommunications Ghana 97,7 97,7
Areeba Guinea S.A. Telecommunications Guinea 75 75
Spacetel Guinea-Bissau S.A. Telecommunications Guinea-Bissau 100 100
Irancell Telecommunications Services Company (Proprietary) Limited** Network operator Iran 49 49
Uunet Communications (Proprietary) Limited Internet service provider Kenya 95 95
Uunet Kenya (Proprietary) Limited Internet service provider Kenya 95 95
Inteltec Offshore SAL Maintenance and engineering services Lebanon 99,8 99,8
Inteltec SAL Maintenance and engineering services Lebanon 99,99 99,99
MTN (Dubai) Limited Holding company Lebanon 100 100
Servico SAL Services and transportation of goods Lebanon 99,97 99,97
Lonestar Communications Corporation LLC Telecommunications Liberia 60 60
Guardrisk International Limited PCC Insurance company Mauritius 100 100
Mobile Botswana Limited Investment holding company Mauritius 100 100
MTN International (Mauritius) Limited Investment holding company Mauritius 100 100
Satellite Data Networks Mauritius (Proprietary) Limited** Internet service provider Mauritius 60 60
MTN Group Limited Integrated Business Report for the year ended 31 December 2010230
Annexure 1 continued As at 31 December 2010
Effective % interest in issued ordinary share capital
Subsidiaries and joint ventures in which MTN Group Limited has a direct and indirect interest Principal activity
Place of incorporation
December 2010
%
December2009
%
Inteltec Maroc SA Maintenance and engineering services Monaco 99,83 99,83
MTN International Carrier Services Telecommunications Monaco — 99,84
MTN Business Solutions Namibia (Proprietary) Limited Internet service provider Namibia 100 100
Electronic Funds Transfer Operations Nigeria Limited Virtual airtime Nigeria 50 50
MTN Nigeria Communications Limited Network operator Nigeria 76,1 76,1
XS Broadband Limited Telecommunications Nigeria 100 100
Galactic Engineering Projects SA Holding company Panama 78 78
Vernis Associates SA Holding company Panama 100 100
MTN Congo S.A. Network operatorRepublic of the Congo 100 100
Supercell Network operatorRepublic of the Congo 70 70
MTN Rwandacell S.A.R.L ** Network operator Rwanda 55 55
Village Phone Rwanda ** Airtime sales Rwanda 100 35
Aconcagua 11 (Proprietary) Limited Property holding South Africa 100 100
Cell Place (Proprietary) Limited Cellular dealership South Africa 51 51
iTalk Cellular (Proprietary) Limited Service provider South Africa 100 100
Mobile Telephone Networks (Proprietary) Limited Network operator South Africa 100 100
Mobile Telephone Networks Holdings (Proprietary) Limited Investment holding company South Africa 100 100
MTN Business Solutions (Proprietary) Limited Internet service provider South Africa 100 100
231MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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Effective % interest in issued ordinary share capital
Subsidiaries and joint ventures in which MTN Group Limited has a direct and indirect interest Principal activity
Place of incorporation
December 2010
%
December2009
%
MTN Group Management Services (Proprietary) Limited Management services South Africa 100 100
MTN International (Proprietary) Limited Investment holding company South Africa 100 100
MTN Mobile Money Holdings (Proprietary) Limited ** Wireless banking services South Africa 50 50
MTN Network Solutions (Proprietary) Limited Internet service provider South Africa 100 100
MTN Propco (Proprietary) Limited Property holding South Africa 100 100
MTN Service Provider (Proprietary) Limited Service provider South Africa 100 100
Satellite Data Networks (Proprietary) Limited Dormant company South Africa 100 100
MTN Sudan Company Limited Network operator Sudan 85 85
Swazi MTN Limited** Network operator Swaziland 30 30
MTN Syria (JSC) Telecommunications Syria 75 75
MTN Publicom Limited Payphone services Uganda 100 100
MTN Uganda Limited Network operator Uganda 95 95
Spacetel International Limited Dormant company United Kingdom 100 100
Spacetel UK Limited Telecommunications United Kingdom — 100
Cotel Holdings Limited Investment holding company Zambia 100 100
MTN (Zambia) Limited Network operator Zambia 90 100
Uunet Zambia (Proprietary) Limited Internet service provider Zambia 95 95
** Joint ventures.
232
Notice of annual general meeting Shareholders’ information
We strive to enhance value for our stakeholders by pursuing economic, social and environmental opportunities through our core business activities.
233
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010234
Notice of the sixteenth annual general meeting for the year ended 31 December 2010
MTN Group LimitedIncorporated in the Republic of South Africa(Registration number 1994/009584/06)(the MTN Group or the Company)JSE code: MTNISIN: ZAE000042164
This document is important and requires your immediate attentionIf you are in any doubt about what action you should take, consult your broker, Central Securities Depository Participant (CSDP), legal adviser, banker, financial adviser, accountant or other professional adviser immediately.
If you have disposed of all your shares in MTN Group, please forward this document, together with the enclosed form of proxy, to the purchaser of such shares or the broker, banker or other agent through whom you disposed of such shares.
Included in this document are: The notice of meeting, setting out the resolutions to be proposed thereat, together with explanatory notes. There are also guidance notes if you wish to
attend the meeting (for which purpose the meeting location map is included) or to vote by proxy. A proxy form for use by shareholders holding MTN Group ordinary shares in certificated form or recorded in sub-registered electronic form in “own name”.
Shareholders on the MTN Group share register who have dematerialised their ordinary shares through Strate, other than those whose shareholding is recorded in their “own name” in the sub-register maintained by their CSDP, and who wish to attend the meeting in person, will need to request their CSDP or broker to provide them with the necessary authority to do so in terms of the custody agreement entered into between the dematerialised shareholders and their CSDP or broker.
A shareholder (including certificated shareholders and dematerialised shareholders who hold their shares with “own name” registration) entitled to attend and vote at the meeting may appoint one or more proxies or proxies to attend, participate and vote in his/her/its stead. A proxy does not have to be a shareholder of the Company. The appointment of a proxy will not preclude the shareholder who appointed that proxy from attending the annual general meeting and participating and voting in person thereat to the exclusion of any such proxy. A form of proxy for use at the meeting is attached.
235MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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NOTICE TO SHAREHOLDERS: ANNUAL GENERAL MEETING (AGM)Notice is hereby given to shareholders as at the record date of 24 May 2011, that the sixteenth annual general meeting of shareholders of the MTN Group will be held in the Auditorium, Phase II, level 0, 216 – 14th Avenue, Fairland, Gauteng, on Wednesday, 22 June 2011 at 14:30 (South African time), to (i) deal with such other business as may lawfully be dealt with at the meeting and (ii) consider and, if deemed fit to pass, with or without modification, the following ordinary and special resolutions, in the manner required by the Companies Act, 71 of 2008, as amended (Companies Act), as read with the JSE Limited Listings Requirements (JSE Listings Requirements), which meeting is to be participated in and voted at by shareholders as at the record date of 17 June 2011 in terms of section 62(3)(a), read with section 59, of the Companies Act:
NB: Section 63(1) of the Companies Act – Identification of meeting participants
Kindly note that, meeting participants (including proxies) are required to provide reasonably satisfactory identification before being entitled to attend or participate in a shareholders’ meeting. Forms of identification include valid identity documents, driver’s licences and passports.
When reading the resolutions below, please refer to the explanatory notes for AGM resolutions on pages 245 to 248.
For the purposes hereof “Group” shall bear the meaning assigned to it by the JSE Listings Requirements, which defines “Group” as a holding company, not itself being a wholly owned subsidiary, together with all companies which are its subsidiaries.
1. Presentation of annual financial statementsThe consolidated audited annual financial statements of the Company and its subsidiaries (as approved by the board of directors of the Company), including the directors’ report, the audit committee report and the external auditors’ report for the year ended 31 December 2010, have been distributed as required and will be presented to shareholders.
The complete annual financial statements are set out on pages 106 to 231 of the integrated annual report.
2. Ordinary resolution number 1Re-election of AT Mikati as a director
“Resolved that AT Mikati, who retires by rotation in terms of the memorandum of incorporation of the Company and who is eligible and available for re-election, is re-elected as a director of the Company.”
Age: (38)First appointed: 17 July 2006Educational qualification: BSc
Directorships: Director of various companies in the MTN Group, CEO of M1 Group Limited (an international investment group with a strong focus on the telecommunications industry), director of various companies in the M1 Group.
He is a non-executive director and serves on the nomination, remuneration, human resources and corporate governance committee.
MTN Group Limited Integrated Business Report for the year ended 31 December 2010236
3. Ordinary resolution number 2Re-election of J van Rooyen as a director
“Resolved that J van Rooyen, who retires by rotation in terms of the memorandum of incorporation of the Company and who is eligible and available for re-election, is re-elected as a director of the Company.”
Age: (60)First appointed: 17 July 2006Educational qualifications: BCom, BCompt (Hons), CA(SA)
Directorship: Director of various companies in the MTN Group, various companies in the Uranus Group, Pick n Pay Stores Limited, Exxaro Resources Limited and a Trustee of the IFRS Foundation.
He is an independent, non-executive director and serves as the chairperson of the risk management and compliance committee and a member of the audit committee.
4. Ordinary resolution number 3Re-election of JHN Strydom as a director
“Resolved that JHN Strydom, who retires by rotation in terms of the memorandum of incorporation of the Company and who is eligible and available for re-election, is re-elected as a director of the Company.”
Age: (71)First appointed: 11 March 2004Educational qualifications: MCom (Acc), CA(SA)
Directorship: Director of various companies in the MTN Group, Public Investment Corporation Limited (PIC) and Growthpoint Properties Limited.
He is a non-executive director and serves on the audit committee and risk management and compliance committee.
5. Ordinary resolution number 4Re-election of MJN Njeke as a director
“Resolved that MJN Njeke, who retires by rotation in terms of the memorandum of incorporation of the Company and who is eligible and available for re-election, is re-elected as a director of the Company.”
Age: (52)First appointed: 13 June 2005Educational qualifications: BCom, BCompt (Hons), CA(SA), H Dip Tax Law
Directorships: Director of various companies in the MTN Group, ArcelorMittal SA, Ivolve Procurement & Rental Partner, MMI Holdings Limited, Resilient Property Income Fund Limited, Serengeti Properties (Proprietary) Limited, Salvage Management and Disposal (SMD), Sameh Properties and Silver Unicorn
Notice of the sixteenth annual general meeting continued for the year ended 31 December 2010
237MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Trading, Adcorp Holdings Limited, Sasol Limited, Barloworld Limited. Johnson served as a partner at PricewaterhouseCoopers and is a past chairperson of The South African Institute of Chartered Accountants.
He is an independent, non-executive director and serves on the audit committee and risk management and compliance committee.
6. Ordinary resolution number 5Re-election of KP Kalyan as a director
“Resolved that KP Kalyan, who retires by rotation in terms of the memorandum of incorporation of the Company and who is eligible and available for re-election, is re-elected as a director of the Company.”
Age: (55)First appointed: 13 June 2006Educational qualifications: BCom (Law) (Hons) Economic, University of Durban Westville; Senior Executive Management Programme (London Business School)
Directorships: Director of various companies in the MTN Group, Standard Bank Group Limited, South African Bank Note Company Limited, South African Mint Company Limited, Non-executive chair of Edgo Merap (London) Limited, Omega Risk Solutions Limited, the Tallberg Foundation (Sweden) Limited, Hayleys Energy Services (Sri Lanka) Limited, Kgontsi Holdings Limited, Kgontsi Investments Limited and Euromax (London, Mumbai and India) Limited.
She is an independent, non-executive director and serves on the risk management and compliance committee and the nomination, remuneration, human resources and corporate governance committee.
7. Ordinary resolution number 6Election of the audit committee – Election of AF van Biljon (chairperson)
“Resolved that AF van Biljon be elected a member and chairperson of the audit committee, with effect from the end of this meeting in terms of section 94(2) of the Companies Act.”
8. Ordinary resolution number 7Election of the audit committee – Election of J van Rooyen
“Resolved that J van Rooyen be elected a member of the audit committee, with effect from the end of this meeting in terms of section 94(2) of the Companies Act, subject to his re-election as a director pursuant to ordinary resolution number 2.”
9. Ordinary resolution number 8Election of the audit committee – Election of JHN Strydom
“Resolved that JHN Strydom be elected a member of the audit committee, with effect from the end of this meeting in terms of section 94(2) of the Companies Act, subject to his re-election as a director pursuant to ordinary resolution number 3.”
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010238
Notice of the sixteenth annual general meeting continued for the year ended 31 December 2010
10. Ordinary resolution number 9Election of the audit committee – Election of NP Mageza
“Resolved that NP Mageza be elected a member of the audit committee, with effect from the end of this meeting in terms of section 94(2) of the Companies Act.”
11. Ordinary resolution number 10Election of the audit committee – Election of MJN Njeke
“Resolved that MJN Njeke be elected a member of the audit committee, with effect from the end of this meeting in terms of section 94(2) of the Companies Act, subject to his re-election as a director pursuant to ordinary resolution number 4.”
12. Ordinary resolution number 11Reappointment of joint independent auditors
“Resolved that PricewaterhouseCoopers Inc. and SizweNtsaluba VSP are reappointed as joint auditors of the Company (for the financial year ending 31 December 2011) until the conclusion of the next annual general meeting.”
13. Ordinary resolution number 12 General authority to directors to allot and issue ordinary shares
“Resolved that, as required by and subject to the Company’s memorandum of incorporation, and subject to the provisions of the Companies Act and the JSE Listings Requirements, each as presently constituted and as amended from time to time, the directors are authorised, as they in their discretion think fit, to allot, issue and grant options over and to undertake to allot, issue and grant options over shares –
1. representing not more than 10% of the number of ordinary shares in issue as at 31 December 2010 (ie 188 451 012 ordinary shares);
2. as have specifically been reserved to be allotted and issued by the Company in terms of its share and other employee incentive schemes (ie 5% of the unissued ordinary shares,
from the authorised but unissued ordinary shares of 0,01 cent each in the share capital of the Company, such authority to endure until the forthcoming annual general meeting of the Company (whereupon this authority shall lapse, unless it is renewed at the aforementioned annual general meeting), provided that it shall not extend beyond 15 months of the date of this meeting.”
14. Ordinary resolution number 13Endorsement of the Remuneration Philosophy (Policy)
“Resolved that, through a non-binding advisory vote, the Company’s remuneration policy (excluding the remuneration of the non-executive directors and the members of board committees for their services as directors and members of committees), as set out in the remuneration report contained in the integrated annual report, is endorsed.”
239MTN Group Limited Integrated Business Report for the year ended 31 December 2010
SPECIAL RESOLUTIONS1. Special resolution number 1
Proposed increase of remuneration payable to non-executive directors
“Resolved that, in terms of article 73(b) of the memorandum of incorporation of the Company and subject to the terms thereof, that the non-executive directors’ remuneration, payable quarterly in arrears, be increased with effect from 1 July 2011 as set out below:
Annual retainer fee Meeting attendance feeCurrent Proposed Current Proposed
MTN Group boardChairperson R825 000 R900 000 R71 500 R78 007Member R165 000 R180 015 R37 500 R40 912International member €72 450 €75 420 €7 245 €7 542Local non-executive directors on special assignments or projects per day n/a n/a R17 490 R18 207International non-executive director on special assignment or projects per day n/a n/a €3 177 €3 307
Ad hoc work performed by non-executive directors for special projects (hourly rate) R3 180 R3 310Audit committeeChairperson R84 800 R90 800 R26 500 R28 370Member R47 700 R51 100 R18 020 R19 300International member n/a n/a n/a n/aRisk management and compliance committeeChairperson R63 300 R67 800 R23 850 R25 540Member R37 100 R39 730 R17 490 R18 730International member €3 105 €3 232 €3 105 €3 232Nominations, remuneration, human resources and corporate governance committeeChairperson R63 300 R67 800 R23 850 R25 540Member R37 100 R39 730 R17 490 R18 730International member €3 105 €3 232 €3 105 €3 232Tender committeeChairperson n/a n/a R21 200 R22 700Member n/a n/a R15 500 R16 600MTN Group Share Trust (trustees) Chairperson n/a n/a R21 200 R22 700Other trustees n/a n/a R11 600 R12 490
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010240
Notice of the sixteenth annual general meeting continued for the year ended 31 December 2010
Special resolution number 1 is proposed in order to comply with the requirements of the Companies Act and the Company’s memorandum of incorporation. The above rates have been selected to ensure that the remuneration of non-executive directors remains competitive in order to enable the Company to retain and attract persons of the calibre, appropriate capabilities, skills and experience required in order to make meaningful contributions to the Company, given its global footprint and growth rate.
In arriving at the proposal set out in special resolution number 1, the Group President and CEO, in consultation with the Group Executive for Human Resources, conducted a review of the remuneration paid to non-executive directors and other non-executive office bearers, based on data provided by independent remuneration specialists and benchmarked against comparable South African companies with international operations. The nomination, remunerations, human resources and corporate governance committee considered the revised remuneration proposal in detail and, after consensus, recommended the revised remuneration proposal to the board, which sanctioned the proposal for recommendation to shareholders.
The proposed revised remuneration is considered to be fair and reasonable and in the best interests of the Company.
2. Special resolution number 2
Repurchase of the Company’s shares Preamble
The board of directors of the Company has considered the impact of a repurchase or purchase, as the case may be, of up to 10% of the Company’s shares, which falls within the amount permissible under a general authority in terms of the JSE Listings Requirements and, in respect of acquisitions by subsidiaries of the Company, the Companies Act.
Should the opportunity arise and should the directors deem it to be advantageous to the Company, or any of its subsidiaries, to repurchase or purchase, as the case may be, such shares, it is considered appropriate that the directors (and relevant subsidiaries) be authorised to repurchase or purchase, as the case may be, the Company’s shares.
“Resolved that the Company and/or a subsidiary of the Company, is authorised to repurchase or purchase, as the case may be, shares issued by the Company, from any person, upon such terms and conditions and in such number as the directors of the Company or the subsidiary may from time to time determine, including that such securities be repurchased or purchased from share premium or capital redemption reserve fund, but subject to the applicable requirements of the Company’s memorandum of incorporation, the Companies Act and the JSE Listings Requirements, each as presently constituted and as amended from time to time; and subject further to the restriction that the repurchase or purchase, as the case may be, by the Company and/or any of its subsidiaries, of shares in the Company of any class under this authority shall not, in aggregate in any one financial year, exceed 10% of the shares in issue in such class as at the commencement of such financial year.”
It is recorded that, as at the last practicable date, the JSE Listings Requirements provide, inter alia, that the Company or any subsidiary of the Company may only make a general repurchase of the ordinary shares in the Company if:
1. any such repurchase of shares is implemented through the order book operated by the JSE’s trading system and done without any prior understanding or arrangement between the Company and the counter-party (reported trades are prohibited);
2. authorisation thereto is given by the Company’s memorandum of incorporation;
241MTN Group Limited Integrated Business Report for the year ended 31 December 2010
3. at any point in time, the Company may only appoint one agent to effect any repurchase(s) on its behalf;
4. the general authority shall be valid only until the Company’s next annual general meeting or 15 months from the date of passing of this special resolution, whichever is earlier;
5. t he board of directors authorises the repurchase, that the company passes the solvency and liquidity test and that from the time that the test is done there are no material changes to the financial position of the Group;
6. when the Company or a subsidiary of the Company has cumulatively repurchased 3% of any class of the Company’s shares in issue on the date of passing of this special resolution (the initial number), and for each 3% in aggregate of that class of shares acquired thereafter, in each case in terms of this resolution an announcement shall be published on SENS and in the press as soon as possible and not later than 08:30 on the second business day following the day on which the relevant threshold is reached or exceeded, and the announcement shall comply with the requirements of the JSE Listings Requirements in this regard;
7. that all general repurchases by the Company of its own shares shall not, in aggregate in any one financial year, exceed 20% of the Company’s issued share capital of that class. The terms of the proposed special resolution, however, further restrict this to a maximum of 10% of the issued share capital of a class and not the full 20% allowed under the JSE Listings Requirements;
8. that the Company or its subsidiaries may not purchase any of the Company’s shares during a prohibited period as defined in the JSE Listings Requirements, unless they have in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period;
9. no repurchases may be made at a price which is greater than 10% above the weighted average of the market value for the securities for the five business days immediately preceding the date on which the transaction is effected (the maximum price). The JSE will be consulted for a ruling if the applicant’s securities have not traded in such five-day period; and
10. if the Company enters into derivative transactions that may or will result in the repurchase of shares in terms of this general authority, such transactions will be subject to the requirements in paragraph 2, 3, 4, 7 and 8 above, and the following requirements:
(a) the strike price of any put option written by the Company less the value of the premium received by the Company for that put option may not be greater than the fair value of a forward agreement based on a spot price not greater than the maximum price in paragraph 9 above;
(b) the strike price and any call option may be greater than the maximum price in paragraph 9 at the time of entering into the derivative agreement, but the Company may not exercise the call option if it is more than 10% “out the money”; and
(c) the strike price of the forward agreement may be greater than the maximum price but limited to the fair value of a forward agreement calculated from a spot price not greater than the maximum price.
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010242
Notice of the sixteenth annual general meeting continued for the year ended 31 December 2010
This resolution is required to be passed, on a show of hands, by not less than 75% of the number of shareholders of the Company entitled to vote on a show of hands, at the meeting who are present in person or by proxy or, where a poll has been demanded, by not less than 75% of the total votes to which the shareholders present in person or by proxy are entitled.
After considering the effect of such maximum repurchase:
– the Company and the Group will be able in the ordinary course of business to pay its debts for a period of 12 months after the date of the notice of the annual general meeting;
– the assets of the Company and the Group will be in excess of the liabilities of the Company and the Group for a period of 12 months after the date of the notice of the annual general meeting. For this purpose, the assets and liabilities should be recognised and measured in accordance with the accounting policies used in the latest audited annual Group financial statements;
– the share capital and reserves of the Company and the Group will be adequate for ordinary business purposes for a period of 12 months after the date of the notice of the annual general meeting; and
– the working capital of the Company and the Group will be adequate for ordinary business purposes for a period of 12 months after the date of the notice of general meeting.
For the purpose of considering the special resolution number 2 and in compliance with paragraph 11.26 of the JSE Listings Requirements, the information listed below has been included in the annual report, in which this notice of annual general meeting is included, at the places indicated:
directors and management – refer to pages 20 to 23 and pages 34 and 35 of this report; major shareholders – refer to page 91 of this report; directors’ interests in securities – refer to page 102 of this report; share capital of the Company – refer to page 88 of this report. the directors, whose names are set out on pages 20 to 23 of this report, collectively and individually accept full responsibility for the accuracy of the
information contained in this special resolution and certify that to the best of their knowledge and belief, there are no other facts, the omission of which, would make any statement false or misleading and that they have made all reasonable enquiries in this regard.
There are no legal or arbitration proceedings (including any such proceedings that are pending or threatened of which the Company is aware), which may have or have had a material effect on the Company’s financial position over the last 12 months.
At the date of completing this notice, there have been no material changes in the financial or trading position of the Company and its subsidiaries that have occurred since December 2010.
At the present time, the directors have no specific intention with regard to the utilisation of this authority which will be used only if the circumstances are appropriate.
A general repurchase or purchase, as the case may be, of the Company’s shares shall only take place after the JSE has received written confirmation from the Company’s sponsor in respect of the directors’ working capital statement.
243MTN Group Limited Integrated Business Report for the year ended 31 December 2010
3. Special resolution number 3 Financial assistance to subsidiaries and other related and inter-related entities and to directors, prescribed officers and other persons
participating in share or other employee incentive schemes
“Resolved that, to the extent required by the Companies Act, the board of directors of the Company may, subject to compliance with the requirements of the Company’s memorandum of incorporation, the Companies Act and the JSE Listings Requirements, each as presently constituted and as amended from time to time, authorise the Company to provide direct or indirect financial assistance by way of loan, guarantee, the provision of security or otherwise, to –1. any of its present or future subsidiaries and/or any other company or corporation that is or becomes related or inter-related to the Company for any
purpose or in connection with any matter, including, but not limited to, the subscription of any option, or any securities issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company; and
2. any of its present or future directors or prescribed officers (or any person related to any of them or to any company or corporation related or inter-related to any of them), or to any other person who is a participant in any of the Company’s or Group’s share or other employee incentive schemes, for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company, where such financial assistance is provided in terms of any such scheme that does not satisfy the requirements of section 97 of the Act, such authority to endure until the forthcoming annual general meeting of the Company.”
Voting proceduresThe directors of the Company decided in 2006 that in order to reflect more accurately the views of all shareholders and best practice, all resolutions and substantive decisions at the annual general meeting were to be put to a vote on a poll, rather than being determined simply on a show of hands. MTN Group has a large number of shareholders and it is not possible for them all to attend the meeting. In view of this and because voting on resolutions at annual general meetings of MTN Group is regarded as of high importance, putting all resolutions to a vote on a poll takes account of the wishes of those shareholders who are unable to attend the meeting in person, but who have completed a form of proxy. A vote on a poll also takes into account the number of shares held by each shareholder, which the board believes is a more democratic procedure. This year, all resolutions will again be proposed to be put to vote on a poll.
Voting at this year’s AGM will be undertaken electronically. An electronic voting handset will be distributed before the start of the meeting to all shareholders who attend in person and are eligible to vote. The registrars will identify each shareholder’s individual shareholding so that the number of votes that each shareholder has at the meeting will be linked to the number of votes which each shareholder will be able to exercise via the electronic handset. Shareholders who have completed and returned forms of proxy will not need to vote using a handset at the meeting unless they wish to change their vote.
ProxiesA shareholder entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend, participate in and vote at the meeting in the place of the shareholder. A proxy need not also be a shareholder of the Company.
A form of proxy, in which is set out the relevant instructions for its completion, is attached for use by certificated shareholders and dematerialised shareholders with “own name” registration of the Company who wish to appoint a proxy. The instrument appointing a proxy and the authority, if any, under which it is signed must be received by the Company or its South African transfer secretaries at the addresses given below by not later than 14:30 (South African time) on Monday, 20 June 2011.
All beneficial owners of shares who have dematerialised their shares through a CSDP or broker, other than those shareholders who have dematerialised their shares in “own name” registrations, and all beneficial owners of shares who hold certificated shares through a nominee, must provide their CSDP, broker or
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010244
Notice of the sixteenth annual general meeting continued for the year ended 31 December 2010
nominee with their voting instructions. Voting instructions must reach the CSDP, broker or nominee in sufficient time and in accordance with the agreement between the beneficial owner, and the CSDP, broker or nominee, as the case may be, to allow the CSDP, broker or nominee to carry out the instructions and lodge the requisite authority by 14:30 (South African time) on Monday, 20 June 2011.
Should such beneficial owners, however, wish to attend the meeting in person, they may do so by requesting their CSDP, broker or nominee to issue them with appropriate authority in terms of the agreement entered into between the beneficial owner, and the CSDP, broker or nominee, as the case may be.
Shareholders who hold certificated shares in their own name and shareholders who have dematerialised their shares in “own name” registration must lodge their completed proxy forms at the registered office of the Company or with the Company’s South African transfer secretaries at the address below not later than 14:30 (South African time) on Monday, 20 June 2011.
By order of the board
SB MtshaliGroup secretary
27 May 2011
Business address and registered office216 – 14th AvenueFairland, 2195Private Bag X9955, Cresta, 2118
South African transfer secretariesComputershare Investor Services (Proprietary) LimitedRegistration number 2004/003647/0770 Marshall Street, Johannesburg, 2001PO Box 61051, Marshalltown, 2107Fax number: +27 11 688 5238
Shareholder communicationComputershare Investor Services (Proprietary) LimitedRegistration number 2004/003647/0770 Marshall Street, Johannesburg, 2001PO Box 61051, Marshalltown, 2107Toll-free: 0800 202 360Tel: +27 11 870 8206 (International)Fax number: +27 11 688 5238
245MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Explanatory notes to resolutions proposed at the sixteenth annual general meeting of the Company
For any assistance or information, please phone the MTN Group ShareCare Line on 0800 202 360 or on +27 11 870 8206 if you are phoning from outside South Africa.
Re-election of directors retiring by rotation at the annual general meeting – ordinary resolutions numbers 1 to 5The reason for the proposed ordinary resolutions numbers 1 to 5 is to elect, in accordance with article 84 of the memorandum of incorporation of the Company and by way of a series of votes, each of which is on the candidacy of a single individual to fill a single vacancy, as required under section 68(2) of the Companies Act, AT Mikati, JHN Strydom, MJN Njeke and KP Kalyan, as directors of the Company, them having retired by rotation in terms of the Company’s memorandum of incorporation and being eligible for re-election. Biographical details of the retiring directors offering themselves for re-election are set out on pages 20 to 23.
Election of the audit committee – ordinary resolutions numbers 6 to 10In terms of the Companies Act, the audit committee is no longer a committee of the board but a committee elected by the shareholders at each annual general meeting.
In terms of the Companies Regulations, at least one-third of the members of the Company’s audit committee at any particular time must have academic qualifications, or experience, in economics, law, corporate governance, finance, accounting, commerce, industry, public affairs or human resource management.
Mindful of the aforegoing, the nomination, remuneration, human resources and corporate governance committee recommended to the board that the current members of the audit committee continue in such role to fulfil the duties prescribed in section 94(7) of the Companies Act, and the board has approved such recommendations, subject to the elections being made by the shareholders, as proposed in ordinary resolutions numbers 6 to 10.
Approval of reappointment of joint external auditors – ordinary resolution number 11In compliance with section 90 of the Companies Act, PricewaterhouseCoopers Inc. and SizweNtsaluba VSP are proposed to be reappointed as joint auditors for the financial year ending 31 December 2011 and until the conclusion of the next annual general meeting.
Authorising the directors to deal, as they in their discretion think fit, with the unissued ordinary shares, limited to 10% of shares in issue as at 31 December 2010, excluding shares reserved for the Company’s share or other employee incentive schemes – ordinary resolution number 12 In terms of article 7 of the Company’s memorandum of incorporation, read with the JSE Listings Requirements, the members of the Company may authorise the directors to, inter alia, issue any unissued ordinary shares and/or grant options over them, as the directors in their discretion think fit.
The existing authority granted by the shareholders at the previous annual general meeting on 15 July 2010, is proposed to be renewed at this annual general meeting. The authority will be subject to the Companies Act and the JSE Listings Requirements respectively. The aggregate number of ordinary shares able to be allotted and issued in terms of this resolution, other than in terms of the Company’s share or other employee incentive schemes shall be limited to 10% of the number of ordinary shares in issue as at 31 December 2010.
The directors have decided to seek annual renewal of this authority in accordance with best practice. The directors have no current plans to make use of this authority, but wish to ensure, by having it in place, that the Company has the necessary flexibility in managing the Group’s capital resources and to enable the Company to take advantage of any business opportunity that may arise in the future.
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010246
Explanatory notes to resolutions proposed at the sixteenth annual general meeting of the Company continued
Approval of remuneration philosophy (policy) – ordinary resolution number 13In terms of King III recommendations, every year, the Company’s remuneration policy should be tabled for a non-binding advisory vote at the annual general meeting. The essence of this vote is to enable the shareholders to express their views on the remuneration policies adopted in the remuneration of executive directors and on their implementation.
Accordingly, the shareholders are requested to endorse the Company’s remuneration policy as recommended by King III.
Remuneration payable to non-executive directors – special resolution number 1 In terms of paragraphs 15.1 and 15.2, read with paragraph 15.5, of the board charter, the board will determine the level of remuneration paid to members within any limitations imposed by shareholders. Levels and make-up of remuneration should be sufficient to attract and retain the right calibre of members needed to run the Company successfully, but the Company should avoid paying more than is necessary for this purpose. The board will review remuneration annually after taking independent advice and no director will be involved in deciding his own remuneration.
In terms of sections 66(8) and (9) of the Companies Act, which took effect on 1 May 2011, remuneration may only be paid to directors for their service as directors in accordance with a special resolution approved by the shareholders within the previous two years and if not prohibited in terms of a company’s memorandum of incorporation. In terms of article 73(b) of the Company’s memorandum of incorporation, directors shall be entitled to such remuneration as directors as may be determined by the Company in a general meeting by an ordinary resolution, save that any director holding office for less than a year shall only be entitled to such remuneration in proportion to the period during which he has held office during such year. Although the Company has been advised that, in terms of the transitional provisions of the Companies Act, article 73(b) of the memorandum of incorporation could possibly prevail in the interim in respect of this apparent conflict between such article and the Companies Act, the board of directors nonetheless wishes to comply with the provisions of the Companies Act and as such the resolution is proposed as a special resolution.
The last increase was approved on 15 July 2010. Full particulars of remuneration paid to non-executive directors for the financial year ended 31 December 2010 are set out on page 95 and the proposed revised fees to be effective from 1 July 2011, being tabled for approval are set out in special resolution number 1. The directors will receive the top-up payment in order to compensate them for the fact that their fees were not increased with effect from the commencement of the financial year ending 31 December 2011.
General authority for the Company and/or a subsidiary of the Company to repurchase or purchase, as the case may be, shares in the Company – special resolution number 2The existing general authority for the Company and/or a subsidiary thereof to repurchase or purchase, as the case may be, shares in the Company, granted by shareholders at the previous annual general meeting on 15 July 2010, is due to expire at this annual general meeting, unless renewed.
The directors are of the opinion that it would be in the best interests of the Company to extend such general authority and thereby allow the Company or any subsidiary of the Company to be in a position to repurchase or purchase, as the case may be, the shares issued by the Company through the order book of the JSE, should the market conditions and price justify such action.
Repurchases or purchases, as the case may be, will be made only after careful consideration, where the directors believe that an increase in earnings per share will result and where repurchases or purchases, as the case may be, are, in the opinion of the directors, in the best interests of the Company and its shareholders.
This general approval shall be valid until the earlier of the next annual general meeting of the Company, or the variation or revocation of such general authority by a special resolution passed at any subsequent general meeting of the Company, provided that the general authority shall not be extended beyond
247MTN Group Limited Integrated Business Report for the year ended 31 December 2010
15 months from the date of passing the special resolution. The resolution is required to be passed, if voted on by poll, by not less than 75% of the total votes to which the shareholders present in person or by proxy at the meeting are entitled.
General authority for the Company to provide financial assistance to its subsidiaries and other related and inter-related companies and corporations and to directors, prescribed officers and other persons participating in share or other employee incentive schemes – special resolution number 3Notwithstanding the title of section 45 of the Companies Act, being “Loans or other financial assistance to directors”, on a proper interpretation, the body of the section may also apply to financial assistance provided by a company to related or inter-related companies and corporations, including, inter alia, its subsidiaries, for any purpose.
Furthermore, section 44 of the Companies Act may also apply to the financial assistance so provided by a company to related or inter-related companies, in the event that the financial assistance is provided for the purpose of, or in connection with, the subscription of any option, or any securities, issued or to be issued by the Company or a related or inter-related company, or for the purchase of any securities of the Company or a related or inter-related company.
Both sections 44 and 45 of the Companies Act provide, inter alia, that the particular financial assistance must be provided only pursuant to a special resolution of the shareholders, adopted within the previous two years, which approved such assistance either for the specific recipient, or generally for a category of potential recipients, and the specific recipient falls within that category and the board of directors must be satisfied that –
(a) immediately after providing the financial assistance, the Company would satisfy the solvency and liquidity test; and
(b) the terms under which the financial assistance is proposed to be given are fair and reasonable to the Company.
MTN Group, when the need previously arose, had to provide loans to and guarantees loans or other obligations of subsidiaries and was not precluded from doing so in terms of its articles of association or in terms of the Companies Act, 61 of 1973, as amended. MTN Group would like the ability to provide financial assistance, if necessary, also in other circumstances, in accordance with section 45 of the Companies Act. Furthermore, it may be necessary or desirous for MTN Group to provide financial assistance to related or inter-related companies and corporations to subscribe for options or securities or purchase securities of MTN Group or another company related or inter-related to it. Under the Companies Act, MTN Group will however require the special resolution referred to above to be adopted. In the circumstances and in order to, inter alia, ensure that MTN Group’s subsidiaries and other related and inter-related companies and corporations have access to financing and/or financial backing from MTN Group (as opposed to banks), it is necessary to obtain the approval of shareholders, as set out in special resolution number 3.
Sections 44 and 45 contain exemptions in respect of employee share schemes that satisfy the requirements of section 97 of the Companies Act. To the extent that any of the Company’s or the Group’s share or other employee incentive schemes do not satisfy such requirements, financial assistance (as contemplated in sections 44 and 45) to be provided under such schemes will, inter alia, also require approval by special resolution. Accordingly, special resolution number 3 authorises financial assistance to any of MTN Group’s directors or prescribed officers (or any person related to any of them or to any company or corporation related or inter-related to them), or to any other person who is a participant in any of the Company’s share or other employee incentive schemes, in order to facilitate their participation in any such schemes that do not satisfy the requirements of section 97 of the Companies Act.
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010248
Explanatory notes to resolutions proposed at the sixteenth annual general meeting of the Company continued
Voting and proxies1. Every holder of shares present in person or by proxy at the meeting, or, in the case of a body corporate represented at the meeting, shall be entitled to one
vote on a show of hands and on a poll shall be entitled to one vote for every share held.
2. A shareholder (including certificated shareholders and dematerialised shareholders who hold their shares with “own name” registration) entitled to attend and vote at the meeting may appoint one or more proxies to attend, participate and vote in his/her/its stead. A proxy does not have to be a shareholder of the Company. The appointment of a proxy will not preclude the shareholder who appointed that proxy from attending the annual general meeting and participating and voting in person thereat to the exclusion of any such proxy. A form of proxy for use at the meeting is attached.
3. Duly completed proxy forms or powers of attorney must be lodged at the registered offices of the Company or with the Company’s South African transfer secretaries, Computershare, at 70 Marshall Street, Johannesburg, 2001 (PO Box 61051, Marshalltown, 2107), not less than 48 hours before the time appointed for holding the meeting. As the meeting is to be held at 14:30 (South African time) on Wednesday, 22 June 2011, proxy forms or powers of attorney must be lodged on or before 14:30 (South African time) on Monday, 20 June 2011. The name and address of the South African transfer secretaries are given on the back of the proxy form.
4. The attention of shareholders is directed to the additional notes relating to the form of proxy attached, which notes are set out in the proxy form.
5. Dematerialised shareholders other than dematerialised shareholders who hold their shares with “own name” registration, who wish to attend the annual general meeting must contact their CSDP or broker who will furnish them with the necessary authority to attend the annual general meeting or they must instruct their CSDP or broker as to how they wish to vote in this regard. This must be done in terms of the agreement entered into between such shareholder and its CSDP or broker.
249MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Important notes about the annual general meeting (AGM)
Date: Wednesday, 22 June 2011, at 14:30 (South African time)
Venue: The Auditorium, Phase II, Level 0, 216 – 14th Avenue, Fairland, Gauteng
Time: The AGM will start promptly at 14:30 (South African time)
Shareholders wishing to attend are advised to be in the auditorium by not later than 14:00. The meeting will commence with a short information session, informing shareholders of the electronic voting process to be utilised at the meeting. Staff will direct shareholders to the AGM. Refreshments will be served after the meeting.
Admission: Shareholders attending the AGM are asked to register at the registration desk in the auditorium reception area at the venue. Meeting participants (including proxies) are required to provide reasonably satisfactory identification before being entitled to attend or participate in the meeting.
Security: Secured parking is provided at the venue at owner’s own risk. Mobile telephones should be switched off for the duration of the proceedings.
Please note1. Certificated shareholders and dematerialised shareholders who hold their shares with “own name” registration Shareholders wishing to attend the AGM have to ensure beforehand, with the transfer secretaries of the Company, that their shares are in fact registered
in their names. Should this not be the case and the shares be registered in any other name or in the name of a nominee company, it is incumbent on shareholders attending the meeting to make the necessary arrangements with that party to be able to attend and vote in their personal capacity. The proxy form contains detailed instructions in this regard.
2. Enquiries Any shareholders having difficulties or queries in regard to the AGM or the above are invited to contact the Group Secretary, SB Mtshali on
+27 (0) 11 912 4067 or the ShareCare Line on 0800 202 360 or +27 (0) 11 870 8206 if phoning from outside of South Africa. Calls will be monitored for quality control purposes and customer safety.
3. Results of annual general meeting The results of the annual general meeting will be posted on SENS as soon as practically possible after the AGM.
Appendix to the notice of annual general meeting
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010250
Shareholders’ informationas at 31 December 2010
31 December 2010 31 December 2009
Spread of ordinary shareholdersNumber of
shareholdingsNumber
of shares% of issued
share capitalNumber of shares
% of issued share capital
Public 71 202 1 279 613 654 67,90 1 184 393 703 64,35 Non-public 21 604 896 433 32,10 656 142 788 35,65 – Directors of MTN Group Limited and major subsidiaries 9 2 880 023 0,15 9 006 155 0,49 – Empowerment* 4 85 509 785 4,54 10 412 747 0,57– Lombard Odier Darier Hentsch & Cie (M1 Limited) 7 184 271 933 9,78 190 084 630 10,33– GEPF** 1 332 234 692 17,63 446 639 256 24,26
Total issued share capital 71 223 1 884 510 117 100,00 1 840 536 491 100,00 * National Empowerment Fund StratEquity Empowerment Investment and MTN Zahkele.** Government Employee Pension Fund managed through various asset, investment and fund managers.
Stock exchange performance December 2010 December 2009
Closing price (cents per share) as at 31 December 13 442 11 790Highest price (cents per share) 13 245 13 600Lowest price (cents per share) 9 822 8 181Total number of shares traded (million) 1 786 1 782,38Total value of shares traded (Rm) 174 683 203 273Number of issued shares 1 885 1 841Number of shares traded as a percentage of issued shares (%) 94,8 96,8Number of transactions 1 113 502 947 733Average weighted trading price (cents per share) 9 778 11 405Average telecommunications index 56 472 56 104Average industrial index 26 527 23 241Average mobile index 188 185,8Dividend yield (%) 2,6 1,5Earnings yield (%) (headline earnings) 6,9 7,7Price/earnings multiple (adjusted headline earnings) as at 31 December 15 13Market capitalisation as at 31 December (Rbn) 253 217
Shareholding (% holding)
� Public – 67,90%� Non-public – 32,10%
251MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Administration
Company registration number1994/009584/06ISIN code: ZAE 000042164Share code: MTNMTN Group ShareCare LineToll free: 0800 202 360 or +27 11 870 8206 if phoning from outside South Africa
Board of directorsMC Ramaphosa *** PF Nhleko*DDB Band *** RS Dabengwa*KP Kalyan*** AT Mikati†**NI Patel* MJN Njeke***JHN Strydom** AF van Biljon***J van Rooyen*** MLD Marole***NP Mageza*** A Harper#*** * Executive † Lebanese # British ** Non-executive *** Independent non-executive director
Group secretarySB MtshaliPrivate Bag X9955, Cresta, 2118
Registered office216 – 14th Avenue, FairlandGauteng, 2195
American Depository Receipt (ADR)ProgrammeCusip No. 62474M108 ADR to ordinary Share 1:1
Depository: The Bank of New York101 Barclay Street, New York NY. 10286, USA
Office of the transfer secretariesComputershare Investors Services (Proprietary) LimitedRegistration number 2004/003647/0770 Marshall Street, MarshalltownJohannesburg, 2001PO Box 61051, Marshalltown, 2107
Joint auditorsPricewaterhouseCoopers Inc.2 Eglin Road, Sunninghill, 2157Private Bag X36, Sunninghill, 2157SizweNtsaluba VSP Inc.1 Woodmead Drive, Woodmead EstateWoodmead, 2157PO Box 2939, Saxonwold, 2132
SponsorDeutsche Securities (SA) (Proprietary) Limited3 Exchange Square, 87 Maude Street, Sandton, 2196
AttorneysWebber Wentzel Bowens10 Fricker Road, Illovo Boulevard, Sandton, 2107PO Box 61771, Marshalltown, 2107
Contact detailsTelephone: National (011) 912 3000International +27 11 912 3000Facsimile: National (011) 912 4093International +27 11 912 4093Email: [email protected]: http:/www.mtn.com
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010252
Shareholders’ diary
Annual general meeting 22 June 2011
Reports
Dividend declaration 8 March 2011
Summarised annual financial results published 9 March 2011
Annual financial statements posted 27 May 2011
Interim financial statements 17 August 2011
Financial year end 31 December 2011
Please note that these dates are subject to alteration.
253MTN Group Limited Integrated Business Report for the year ended 31 December 2010
Form of proxy
TO BE COMPLETED BY CERTIFICATED SHAREHOLDERS AND DEMATERIALISED SHAREHOLDERS WITH “OWN NAME” REGISTRATION ONLYMTN Group Limited(Incorporated in the Republic of South Africa)(Registration number: 1994/009584/06)(MTN Group or the Company)JSE Code: MTNISIN: ZAE 000042164
For use at the annual general meeting to be held at 14:30 (South African time) on Wednesday, 22 June 2011, in the Auditorium, Phase II, level 0, 216 – 14th Avenue, Fairland, Gauteng. For assistance in completing the proxy form, please phone the MTN Group ShareCare Line on 0800 202 360 or on +27 11 870 8206 if you are phoning from outside South Africa. A shareholder entitled to attend and vote at the annual general meeting may appoint one or more proxies to attend, vote and speak in his/her/its stead at the annual general meeting. A proxy need not be a shareholder of the Company.
I/We......................................................................................................................................................................................................................................................................................................................................................................................................(name in block letters)
of (address) .......................................................................................................................................................................................................................................................................................................................................................................................................................................
being a shareholder(s) of the Company, and entitled to ........................................................................................................................................................................................................................................................................... vote, do hereby appoint:
............................................................................................................................................................................. of...................................................................................................................................................................................................................................... or failing him/her,
............................................................................................................................................................................. of...................................................................................................................................................................................................................................... or failing him/her, the chairman of the annual general meeting, as my/our proxy to represent me/us at the annual general meeting to be held at 14:30 (South African time) on Wednesday, 22 June 2011, in the Auditorium, Phase II, level 0, 216 – 14th Avenue, Fairland, Gauteng, for the purposes of considering and, if deemed fit, passing, with or without modification, the resolutions to be proposed thereat and at each adjournment or postponement thereof, and to vote for and/or against the resolutions and/or abstain from voting in respect of the shares in the issued share capital of the Company registered in my/our name (see note 2 overleaf ) as follows::
Ordinary resolutions For Against Abstain1. Ordinary resolution number 1:
Re-election of AT Mikati as a director2. Ordinary resolution number 2: Re-election of J van Rooyen as a director3. Ordinary resolution number 3: Re-election of JHN Strydom as a director4. Ordinary resolution number 4: Re-election of MJN Njeke as a director5. Ordinary resolution number 5: Re-election of KP Kalyan as a director6. Ordinary resolution number 6: To elect AF van Biljon as a member and chairman of the audit committee7. Ordinary resolution number 7: To elect J van Rooyen as a member of the audit committee8. Ordinary resolution number 8: To elect JHN Strydom as a member of the audit committee9. Ordinary resolution number 9: To elect NP Mageza as a member of the audit committee
10. Ordinary resolution number 10: To elect MJN Njeke as a member of the audit committee 11. Ordinary resolution number 11: Reappointment of joint independent auditors12. Ordinary resolution number 12:
To authorise the directors to allot and issue all unissued ordinary shares of 0,01 cent in the share capital of the Company (subject to a maximum of 10% of the issued shares and the further limits in the resolution)
13. Ordinary resolution number 13: Endorsement of the remuneration philosophy (policy)Special resolution
14. Special resolution number 1: To approve the remuneration payable to non-executive directors15. Special resolution number 2:
To approve an authority for the Company and/or any of its subsidiaries to repurchase or purchase, as the case may be, shares in the Company16. Special resolution number 3: To approve the granting of financial assistance by the Company to its subsidiaries and other related and
inter-related companies and corporations and to directors, prescribed officers and other persons participating in share or other employee incentive schemes
Please indicate with an ‘X’ in the appropriate spaces provided above how you wish your vote to be cast. If no indication is given, the proxy will be entitled to vote or abstain as he/she deems fit.Please read the notes on the reverse side hereof.
Signed at ....................................................................................................................................................................... on ................................................................................................................................................................................................................................................ 2011
Full name(s) ................................................................................................................................................................................................................................................................................................................................................................................................ (in block letters)
Signature(s) .......................................................................................................................................................................................................................................................................................................................................................................................................................................
Assisted by (guardian) ................................................................................................................................................................................................................................................................................................................................................................................................. (date)If signing in a representative capacity, see note below.
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010254
Notes to proxy
1. Only shareholders who are registered in the register or sub-register of the Company under their own name may complete a proxy or alternatively attend the meeting. Beneficial owners who are not the registered holder and who wish to attend the meeting in person, may do so by requesting the registered holder, being their Central Security Depository Participant (CSDP), broker or nominee, to issue them with a letter of representation in terms of the custody agreements entered into with the registered holder. Letters of representation must be lodged with the Company’s registrars by no later than 14:30 on Monday, 20 June 2011.
2. Beneficial owners who are not the registered holder and who do not wish to attend the meeting in person must provide the registered holder, being the CSDP, broker or nominee, with their voting instructions. The voting instructions must reach the registered holder in sufficient time to allow the registered holder to advise the Company or the Company’s registrar of their instructions by no later than 14:30 on Monday, 20 June 2011.
3. A shareholder may insert the name of a proxy or the names of two alternative proxies of his/her/its choice in the space/s provided, with or without deleting “the chairman of the general meeting”, but any such deletion or insertion must be initialled by the shareholder. Any insertion or deletion not complying with the foregoing will be declared not to have been validly effected. The person whose name stands first on the proxy form and who is present at the general meeting will be entitled to act as proxy to the exclusion of those whose names follow. In the event that no names are indicated, the proxy shall be exercised by the chairperson of the general meeting.
4. A shareholder’s instructions to the proxy must be indicated by the insertion of an “X” or the relevant number of votes exercisable by that shareholder in the appropriate box provided. An “X” in the appropriate box indicates the maximum number of votes exercisable by that shareholder. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he/she/it deems it in respect of the entire shareholder’s votes exercisable thereat. A shareholder or his/her proxy is not obliged to use all the votes exercisable by the shareholder or by his/her/its proxy, but the total of the votes cast and in respect of which abstention is recorded, may not exceed the maximum number of votes exercisable by the shareholder or by his/her proxy.
5. To be effective, completed proxy forms must be lodged with the Company at its registered address or at the Company’s South African transfer secretaries at the address stipulated below, not less than 48 hours before the time appointed for the holding of the meeting, in accordance with article 70 of the Company’s memorandum of incorporation. As the meeting is to be held at 14:30 on Wednesday, 22 June 2011, proxy forms must be lodged on or before 14:30 on Monday, 20 June 2011.
6. The completion and lodging of this proxy form will not preclude the relevant shareholder from attending the annual general meeting and speaking and voting in person thereat instead of any proxy appointed in terms hereof.
7. The chairperson of the general meeting may reject or accept any proxy form which is completed and/or received other than in compliance with these notes.
8. Any alteration to this proxy form, other than a deletion of alternatives, must be initialled by the signatory.
9. Documentary evidence establishing the authority of a person signing this proxy form in a representative or other legal capacity must be attached to this proxy form, unless previously recorded by the Company or the registrars or waived by the chairperson of the annual general meeting.
10. Where there are joint holders of shares: 10.1 any one holder may sign the proxy form; and 10.2 the vote of the senior shareholder (for which purpose seniority will be determined by the order in which the names of the shareholders appear in the Company’s register) who tenders
a vote (whether in person or by proxy) will be accepted to the exclusion of the vote(s) of the other joint shareholders.
11. A minor must be assisted by his/her parent or legal guardian, unless the relevant documents establishing his/her legal capacity are produced or have been registered by the transfer secretaries.
12. A proxy may not delegate his/her authority to act on behalf of the shareholder, to another person.
Office of the South African transfer secretariesComputershare Investors Services (Proprietary) LimitedRegistration number 2004/003647/0770 Marshall Street, Johannesburg, 2001PO Box 61051, Marshalltown, 2107Fax number: +27 11 668 5238
Shareholders are encouraged to make use of the toll-free ShareCare Line for assistance in completing the proxy form and any other queries.
If you have any questions regarding the contents of this report, please call the MTN Group toll-free ShareCare Line on 0800 202 360(or +27 11 870 8206 if phoning from outside South Africa)
Please note that your call will be recorded for customer safety
255MTN Group Limited Integrated Business Report for the year ended 31 December 2010
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MTN Group Limited Integrated Business Report for the year ended 31 December 2010256
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